Financial ManagementMCQQuestion 13440 of 300
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A firm sells 20,000 units at ₹125 per unit. Variable cost is ₹75 per unit and fixed costs are ₹500,000. What is the Degree of Operating Leverage (DOL)?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option A — 2.00

All Options:

  • A2.00 ✓
  • B1.60
  • C3.20
  • D2.50

Detailed Solution & Explanation

Correct Answer: Option **A** (2.00) **Financial Management Derivation (Leverages - Degree of Operating Leverage):** Contribution = 20,000 × ₹50 = ₹1,000,000. EBIT = Contribution - Fixed Cost = ₹500,000. DOL=ContributionEBIT=2.0\displaystyle \displaystyle \text{DOL} = \frac{Contribution\displaystyle \text{Contribution}}{EBIT\displaystyle \text{EBIT}} = 2.0. Hence, Option A is the correct answer.

More Questions from Financial Management

A company has sales of ₹50,00,000, variable costs of ₹30,00,000, fixed operating costs of ₹10,00,000, and 10% debentures of ₹20,00,000. Compute the Operating Leverage (DOL), Financial Leverage (DFL), and Combined Leverage (DCL).

2. What is the Cash Inflow after Taxes for the Year 1, Year 2 and Year 3 of the investment proposal ?

4. What is the Net Present Value of the investment proposal?

2. What would be the Market Price per Share (MPS) of the company if Price Earnings Ratio (PE ratio) in Plan-1 is 12 times and Plan-II is 15 times?

3. What would be the financial Break Even Point (BEP) in Plan-I and Plan-II?

7. Current Assets and Current Liabilities would be:

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