The degree of operating leverage (DOL) is ___

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Use the below information to answer the following question.

 

       
Sales (1,000 units) $ 200,000  
Variable costs   110,000  
Contribution margin   90,000  
Fixed manufacturing costs   40,000  
Operating income   50,000  
Interest   10,000  
Earnings before taxes   40,000  
Taxes (30%)   12,000  
Net income $ 28,000  
Shares Outstanding   1,000  
 

 

Refer to the table. The degree of operating leverage (DOL) is _____.

Expert Solution
Step 1

Degree of Operating Leverage:

  • It measures the change in the operating income in response to the change in revenues. Firms will have a higher degree of operating leverage when their fixed costs are larger compared to variable costs.

 

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