Ion Generating, Inc., produces ion generators and control (detection) devices for industrial applications such as chemical labs. It is contemplating an expansion into the home security market by producing a smoke detector based off of the same technology that would sell at a price of $50. The production of each smoke detector would require $20 in materials, and 0.4 hours of labor at the rate of $25 per hour. Energy, supervisory and other variable overhead costs would amount to $10 per unit. The accounting department has derived an allocated fixed overhead charge of $7.50 per smoke detector (at a projected volume of 300,000 units) to account for the expected increase in fixed costs.

a. Calculate the degree of operating leverage at a projected volume of 300,000 units and explain what the DOL means. Then calculate the DOL at the breakeven sales level. What happens to DOL when output approaches breakeven level?