Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000. Given this data, the company's degree of operating leverage must have been:
A)4.0
B)1.5
C)5.0
D)21.0

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as the percentage change in net operating income divided by the percentage change in sales. The percentage change in sales is ($63,000 - $60,000) / $60,000 = 5%. The percentage change in net operating income is ($12,000 - $10,000) / $10,000 = 20%. Therefore, DOL = 20% / 5% = 4.0.

Sales in North Corporation Increased from $60,000 Per Year to $63,000