The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (ii) Using t

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2015
The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (ii) Using the concept of operating leverage, by what percentage will EBIT increase if there is 10% increase in sales.

Answer & Explanation:

Degree of Operating Leverage (DOL) = Contribution / EBIT = ₹1,40,000 / ₹40,000 = 3.50 (ii) If sales increase by 10%, the EBIT would increase by 10 x 3.5 = 35%

Topics: Capital Structure

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