If a firm has a degree of operating leverage (DOL) that is greater than 1.0, the we know that a 1.0 percent change in will cause in a change in that is 1.0 percent.
A)EBIT; sales; greater than
B)EBIT; net income; greater than
C)sales; EBIT; less than
D)sales; EBIT; greater than
E)EBIT; net income; less than

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) measures the sensitivity of a company's operating income (EBIT) to changes in sales revenue. A DOL greater than 1.0 indicates that a 1.0 percent change in sales will cause a change in EBIT that is greater than 1.0 percent. Therefore, we can rule out choices A, B, and E. Additionally, since the question is specifically asking about the relationship between sales and EBIT, we can rule out choice C which presents the opposite relationship. Thus, the correct answer is D.

If a Firm Has a Degree of Operating Leverage (DOL)