Respuesta :
miller manufacturing's degree of operating leverage is 1.5. warren corporation's degree of operating leverage is 3. warren's earnings would go up (or down) by as much as miller's with an equal increase (or decrease) in sales, correct option: c - 2 times.
What is degree of operating leverage?
The amount that a company's operating income varies in reaction to a change in sales is measured as operating leverage. Analysts can assess the effect of any change in sales on business earnings using the DOL ratio.
The degree of operating leverage is the leverage what a firm gets out of its fixed cost component in the total cost. The higher the fixed cost and lower variable cost the degree of operating leverage is higher. The higher the operating leverage the profit growth or decline will be higher since increase or decrease in net income is calculated by sales growth multiplied by degree of operating leverage.
Warren’s degree of operating leverage 4.5
Miller Manufacturing degree of operating leverage is 1.5
So Warren’s earnings will increase or decrease 2 times over Miller’s equal increase or decrease in sales.
Calculation: (4.5/1.5)= 3 - 1 = 2 times.
Correct option: c
To know more about degree of operating leverage refer to:
https://brainly.com/question/21790059
#SPJ4
