Miller Manufacturing's degree of operating leverage is 1.5.Warren Corporation's degree of operating leverage is 6.Warren's earnings would go up (or down) by ________ as much as Miller's with an equal increase (or decrease) in sales.
A)1/4
B)4.5 times
C)4 times
D)7.5 times

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates how much a company's operating income will change in response to a change in sales. Warren's DOL is 6, and Miller's is 1.5. Therefore, Warren's earnings would change 6/1.5 = 4 times as much as Miller's with an equal change in sales.

Miller Manufacturing's Degree of Operating Leverage Is 1