A company experienced a 12 % increase in earnings before interest and taxes and a 3 % increase in sales.What is the degree of operating leverage for this company?
A)36
B)6
C)4
D)none of the above

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) can be calculated using the following formula: DOL = percentage change in earnings before interest and taxes (EBIT) / percentage change in sales.

In this case, the percentage change in EBIT is 12% and the percentage change in sales is 3%. 
DOL = 12% / 3% = 4

Therefore, the correct answer is choice letter C.

A Company Experienced a 12 % Increase in Earnings Before