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)7.2
C)1.0
D)2.5

Question

Quizplus · Accepted Answer

DOL = $\frac { ( 8.2075 - 5.95 ) / 5.95 } { ( 49.45 - 43 ) / 43 } = \frac { 0.3794 } { 0.15 } = 2.53$ 
EBIT₀ = 43 - 27.95 - 9.1 = $5.95
EBIT₁ = 49.45 - 49.45(0 .65) - 9.1 = $8.2075
Variable cost ratio = 27.95/43 = 0.65

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