Final answer:
The company’s degree of operating leverage (DOL) measures the sensitivity of the company’s operating income to changes in its sales revenue.
Step-by-step explanation:
The company’s degree of operating leverage (DOL) measures the sensitivity of the company’s operating income to changes in its sales revenue. It helps determine how efficiently the company is utilizing its fixed costs to generate profits. The formula to calculate the DOL is:
DOL = Contribution Margin / Operating Income = (Sales - Variable Costs) / Operating Income
To calculate the DOL for years 6, 7, and 8, you will need information on the company's sales revenue, variable costs, and operating income during those years. Plug in the values into the formula to find the DOL for each year.