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A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will: Multiple choice question. increase by 25% increase by 10% decrease by 10% decrease by 25%
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39 votes
A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will: Multiple choice question. increase by 25% increase by 10% decrease by 10% decrease by 25%

User VDP
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1 Answer

29 votes
29 votes

Answer:

. increase by 25% increase

Step-by-step explanation:

The degree of operating leverage (DOL) measures the sensitivity of a company's operating income or profits to changes in the demand

DOL = percentage change in operating income or profits / percentage change in units sold

2.5 = percentage change in operating income / 10%

percentage change in operating income = 10% x 2.5 = 25%

profits will increase by 25%

User Duwayne
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