Bill's Boat Charters forecasts indicate that if boat $500,000,net operating income will be $25,000 and if rentals equal $525,000,net operating income will be $37,500.What is Bill's degree of operating leverage?
A)2
B)10
C).05
D).10

Question

Quizplus · Accepted Answer

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

% change in net operating income = ($37,500 - $25,000) / $25,000 = 0.5 or 50%
% change in sales = ($525,000 - $500,000) / $500,000 = 0.05 or 5%

DOL = 50% / 5% = 10

Therefore, the answer is B) 10.

Bill's Boat Charters Forecasts Indicate That If Boat $500,000,net Operating