When Quineboag Textile's sales revenue increased from $5.0 million to $5.25 million,net operation income increased from $500,000 to $575,000.What is Quineboag's degree of operating leverage (DOL)?
A).015
B).33
C)3.00
D)10

Question

Quizplus · Accepted Answer

Degree of operating leverage (DOL) = percentage change in net operating income / percentage change in sales revenue

Percentage change in net operating income = ($575,000 - $500,000) / $500,000 = 0.15 or 15%
Percentage change in sales revenue = ($5,250,000 - $5,000,000) / $5,000,000 = 0.05 or 5%

DOL = 0.15 / 0.05 = 3.00

Therefore, the best choice is C) 3.00.

When Quineboag Textile's Sales Revenue Increased from $5