If sales in 1990 were $100,000 and in 2000 sales were $125,000;If operating income in 1999 were $50,000 and in 2000 were $75,000;If net income in 1999 were $10,000 and in 2000 were projected to
Be $15,000; calculate DOL.

Question

Quizplus · Accepted Answer

The Degree of Operating Leverage (DOL) is calculated as the percentage change in operating income divided by the percentage change in sales. From 1999 to 2000, operating income increased from $50,000 to $75,000, which is a 50% increase. Sales increased from $100,000 in 1990 to $125,000 in 2000, but the relevant sales increase for calculating DOL should be from 1999 to 2000. Since the sales figures for 1999 are not provided, we cannot directly calculate the percentage change in sales for that period. However, assuming the question intends for us to use the provided sales figures as a proxy or made an error in dates, the sales increase from $100,000 to $125,000 is a 25% increase over the decade. This discrepancy in the question's details makes it challenging to calculate DOL accurately without the correct sales figure for 1999. Assuming a direct relationship or a typographical error and using the provided figures, a 50% increase in operating income over a 25% increase in sales would suggest a DOL of 2, but this calculation is based on an assumption due to the lack of specific annual sales data for 1999.

If Sales in 1990 Were $100,000 and in 2000 Sales