Question

The degree of operating leverage is computed as

A. percent change in operating profit divided by percent change in net income.

B. percent change in unit volume divided by percent change in operating profit.

C. percent change in EPS divided by percent change in operating income.

D. percent change in operating income divided by percent change in unit volume.

Answer 1

The correct answer for the degree of operating leverage is the percent change in operating income divided by percent change in unit volume, which measures the sensitivity of a company's operating income to its sales volume.

Step-by-step explanation:

The degree of operating leverage is a financial concept used to describe the sensitivity of a company's operating income to changes in its sales volume. It can be calculated as the percent change in operating income divided by the percent change in unit volume. This ratio helps businesses understand how their operating income will be affected by changes in sales and is useful for forecasting and managing operational risks.