The formula for determining the degree of operating leverage is:
DOL = [Q (P - V)] ÷ [Q (P - V)- F_C]
The variables have the following meanings and values:
A 5% increase in the firm's sales will lead to a 20% increase in its EBIT.

Question

The formula for determining the degree of operating leverage is:
DOL = [Q (P - V)] ÷ [Q (P - V)- F_C]
The variables have the following meanings and values:

The formula for determining the degree of operating leverage is: DOL = [Q (P - V)] ÷ [Q (P - V)- F<sub>C</sub>] The variables have the following meanings and values: A 5% increase in the firm's sales will lead to a 20% increase in its EBIT.

A 5% increase in the firm's sales will lead to a 20% increase in its EBIT.

Quizplus · Accepted Answer

The given information implies that the degree of operating leverage is 4, which can be calculated as follows: 
DOL = (% change in EBIT) / (% change in sales) = 20% / 5% = 4.

The Formula for Determining the Degree of Operating Leverage Is