DOL Calculation and Characteristics

The Degree of Operating Leverage (DOL)

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Question

Which of the following is/are true about the DOL?

I. The DOL measures the change in EBIT for a given change in the quantity sold.

II. The DOL is zero at the break-even level.

III. The DOL decreases as the level of sales increases.

Answers

Explanations

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A. B. C. D. E.

D

The DOL measures the percentage change in EBIT for a given percentage change in the quantity sold. At a sales level of Q units, DOL = Q(P-V)/[Q(P-V) - FC]

Hence, at the break-even level, the DOL is infinite but decreases as the sales increase.

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