Question

The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income. true or false

Answer 1

Answer: TRUE

Explanation:

The DEGREE OF OPERATING LEVERAGE (DOL) is a ratio that measure just how much operating income will change if there is a change in sales.

The formula is the % change in EARNINGS BEFORE TAX/ % change in SALES.

This measure therefore assists analysts in estimating the impact of any change in sales in a company.