Measures of Leverage (38)

Question 1

Define Degree of Operating Leverage (DOL) and provide formula to calculate

Answer 1

DOL is the percentage change in operating income for a percentage change in units sold.

DOL = [Q(P-V)]/[Q(P-V)-F]

Question 2

Define Degree of Financial Leverage (DFL) and provide formula to calculate

Answer 2

percentage change in net income for a one percent change in operating income.

DFL = [Q(P-V)-F]/[Q(P-V)-F-C]

Question 3

Formula for Breakeven Point

Answer 3

Q = (F+C)/(P-V)

Question 4

Formula for Operating Breakeven

Answer 4

Q = (F)/(P-V)