Example 1

 Company A, which has clocked sales of $800,000 in year one,

which further increased to $1,000,000 in year two. In year one,
the operating expenses stood at $450,000, while in year two, the
same went up to $550,000. Determine the DOL for Company A.
Use the following data for the calculation of the Degree of Operating
Leverage.
Particulars Year 1 Year 2
Sales Php 800,000 Php 1,000,000
Operating Expense Php 450,000 Php 550,000

EBIT in year 1

EBIT in year 1 = sales in yr 1 – operating expense in year 1

= Php 800,000 – 450,000

= 350,000

EBIT in year 2

EBIT in year 2 = Sales in year 2 – Operating expense in year 2

= ₱1,000,000 – ₱550,000

= ₱450,000

Change in EBIT

Change in EBIT = EBIT in year 2 – EBIT in year 1

= ₱450,000 – ₱350,000

= ₱100,000

Percentage Change in EBIT

Percentage change in EBIT = Change in EBIT / EBIT in year 1 * 100%

= ₱100,000 / ₱350,000 * 100%

= 28.57%

Change in Sales

Change in sales = Sales in year 2 – Sales in year 1

= ₱1,000,000 – ₱800,000

= ₱200,000

Percentage Change in Sales

Percentage change in sales = Change in sales / Sales in year 1 * 100%

= ₱200,000 / ₱800,000 * 100%

= 25.00%

Calculation of Degree of Operating Leverage will be

DOL Formula = Percentage change in EBIT / Percentage change in

sales

DOL Formula= 28.57% / 25.00%

= 1.14

Therefore, the DOL of Company A is 1.14.