Answer:
DOL of Company A= 4.63
DOL of Company B =1.88
Explanation:
<em>The degree of operating leverage measures the volatility in the operating profit of a business as result of the proportion of fixed cost to its total costs.</em>
The operating Leverage = Contribution margin/Operating income
Contribution margin= 60%× 3,400,000 = 2,040,000
Operating income = 60%× 3,400,000 - 1,600,000= 440,000
DOL =2,040,000
/440,000
= 4.634
DOL of Company A= 4.63
Company B
Contribution margin= 25%× 3,500,000=875000
Operating income = 875000 - 410,000 =465000
DOL = 875,000
/465,000 × 100 =1.88
DOL=1.88
