Last year Company A had revenues of $12,000, variable costs of $2,000, and fixed costs of $6,000.
a) Calculate the degree of operating leverage (DOL) for this company
b) Company B in the same industry has similar net margins, but a DOL of 1.8. If sales at this second firm increase by 12%, by what percent will Operating profit increase?
c) If the economy takes a dive next year, and both company’s sales are affected equally, which company will have the most difficulty?
a) DOL – 33; b) 33.3%; c) Company B
a) DOL – 2.5; b) 12%; c) Company B
a) DOL – 2.5; b) 21,6%; c) Company A
a) DOL – 33; b) 21.6%; Company A
a) DOL – 2.5; b) 33.3% c) Company B
a) DOL – 33; b) 12%; c) Company A
