If Tunemony Craft had an increase in EBIT of 24 percent with an degree of accounting operating leverage of 1.2, then the firm must have had a 20 percent increase in revenue if no other changes were involved.

Question

Quizplus · Accepted Answer

The formula for degree of accounting operating leverage is EBIT / (EBIT - Fixed Costs). If the degree of accounting operating leverage is 1.2 and the increase in EBIT is 24%, then the increase in revenue can be calculated as (1.2 * 24%) = 28.8%. Therefore, the statement is true and the firm must have had a 20% increase in revenue if no other changes were involved.

If Tunemony Craft Had an Increase in EBIT of 24