Centex, a producer of telephone systems for small businesses, has current sales of $43 million and variable operating costs of $27.95 million. Centex expects to increase sales in the coming year by 15% while keeping fixed operating costs constant at $9.1 million. What is the DOL for Centex?
A) 3.3
B) 2.5
C) 7.2
D) 1.0

Question

Quizplus · Accepted Answer

DOL = % change in operating income / % change in sales

% change in operating income = (sales - variable operating costs - fixed operating costs) / (sales - variable operating costs) = ($43 million - $27.95 million - $9.1 million) / ($43 million - $27.95 million) = $6.95 million / $15.05 million = 0.46

% change in sales = 15%

DOL = 0.46 / 0.15 = 3.07

Therefore, the DOL for Centex is 3.07.

Centex, a Producer of Telephone Systems for Small Businesses, Has