Figure 4-6. Shorter Company had originally expected to earn operating income of $130,000 in the coming year.Shorter's degree of operating leverage is 2.4.Recently,Shorter revised its plans and now expects to increase sales by 20% next year.
Refer to Figure 4-6.What is the percent change in operating income expected by Shorter in the coming year?

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates how a percentage change in sales will affect operating income. With a DOL of 2.4 and a 20% increase in sales, the expected percent change in operating income is 2.4 * 20% = 48.0%.