using the degree of operating leverage that you computed in the previous question what is
Answers
Answer:
The degree of operating leverage (DOL) is a multiple that measures how much the operating income of a company will change in response to a change in sales. Companies with a large proportion of fixed costs (or costs that don't change with production) to variable costs (costs that change with production volume) have higher levels of operating leverageThe DOL ratio assists analysts in determining the impact of any change in sales on company earnings or profit.
Formula and Calculation of Degree of Operating Leverage
\begin{aligned} &DOL = \frac{\% \text{ change in }EBIT}{\% \text{ change in sales}} \\ &\textbf{where:}\\ &EBIT=\text{earnings before income and taxes}\\ \end{aligned}
DOL=
% change in sales
% change in EBIT
where:
EBIT=earnings before income and taxes
There are a number of alternative ways to calculate the DOL, each based on the primary formula given above:
\text{Degree of operating leverage} = \frac{\text{change in operating income}}{\text{changes in sales}}Degree of operating leverage=
changes in sales
change in operating iinconvenience
income}}Degree of operating leverage=
operating income
contribution margin
\text{Degree of operating leverage} = \frac{\text{sales -- variable costs}}{\text{sales -- variable costs -- fixed costs}}Degree of operating leverage=
sales – variable costs – fixed costs
sales – variable costs
\text{Degree of operating leverage} = \frac{\text{contribution margin percentage}}{\text{operating margin}}Degree of operating leverage=
operating margin
contribution margin percentage