Degree of Operating Leverage(DOL) Degree of Operating Leverage -The percentage change in a firm's operating profit (EBIt)resulting from a 1 percent change in output(sales) DoL at Q Percentage change in units of operating profit(EBIT) output Percentage change in for sales) output (or sales) 16-16
16-16 at Q units of output (or sales) -- The percentage change in a firm’s operating profit (EBIT) resulting from a 1 percent change in output (sales). = Percentage change in operating profit (EBIT) Percentage change in output (or sales)
Computing the DOL Calculating the DoL for a single product or a single-product firm Q(P-v DOL Q units Q(P-V)-FC Q BE 16-17
16-17 = ( - ) ( - ) - = -
Computing the DOL Calculating the DoL for a multiproduct firm. DOLO s dollars of sales EBIT+ FC EBIT 16-18
16-18 = - - - = EBIT + EBIT
Break Even Point Example Lisa Miller wants to determine the degree of operating leverage at sales levels of 6,000 and 8.000 units, As we did earlier we will assume that Fixed costs are $100,000 Baskets are sold for $43.75 each Variable costs are $18.75 per basket 16-19
16-19 Lisa Miller wants to determine the at . As we did earlier, we will assume that: are u Baskets are sold for u Variable costs are
Computing BW's DOL Computation based on the previously calculated break-even point of 4, 000 units 6.000 DOL 6.000 units 3 6,000-4,000 8.000 DOL 8,000 units〓 8,000-4000 16-20
16-20 = - = = - =