This material is from LOS 37.b.. The degree of operating leverage (DOL) is defined as the percentage change in operating income (EBIT) that results from a given percentage change in sales DOL = percentage change in EBIT/percentage change in sales which can be calculated by: DOL = Q(P - V) / Q(P-V) - F where Q = quantity of units sold, P = price per unit V = variable cost per unit F = fixed cost Can someone please explain why DOL = percentage change in EBIT/percentage change in sales = Q(P - V) / Q(P-V) - F ?? I'm having trouble understanding why they are equivalent.

DOL =(% Change in EBIT)/(% Change in Sales)=((change in EBIT)/(Initial EBIT))/((Change in Sales)/(Initial Sales))= (((P-V)*(Q^*-Q))/((P-V)*Q-FC))/((P*(Q^*-Q))/(P*Q))= (Q*(P-V))/((P-V)*Q-FC)

A CFA Level 1 Discussion About Question About Measures Of Leverage

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This topic has 1 reply, 2 voices, and was last updated Dec-187:08 am by vaibhavgupta177.

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- glazed_donuts
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  - CFA Level 1
  05 Sep 2018 at 6:39 am
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  This material is from LOS 37.b..
  The degree of operating leverage (DOL) is defined as the percentage change in operating income (EBIT) that results from a given percentage change in sales
  DOL = percentage change in EBIT/percentage change in sales
  which can be calculated by:
  DOL = Q(P – V) / Q(P-V) – F
  where Q = quantity of units sold,
  P = price per unit
  V = variable cost per unit
  F = fixed cost
  
  Can someone please explain why DOL = percentage change in EBIT/percentage change in sales = Q(P – V) / Q(P-V) – F ?? I’m having trouble understanding why they are equivalent.
- vaibhavgupta177
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  - CFA Level 2
  18 Dec 2018 at 7:08 am
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  DOL =(% Change in EBIT)/(% Change in Sales)=((change in EBIT)/(Initial EBIT))/((Change in Sales)/(Initial Sales))= (((P-V)*(Q^*-Q))/((P-V)*Q-FC))/((P*(Q^*-Q))/(P*Q))= (Q*(P-V))/((P-V)*Q-FC)
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