Answer (B) is correct . The degree of operating leverage (DOL) is a measure of the change in operating income (or EBIT) associated with a given change in sales volume. Operating leverage arises from a high level of plant and machinery (i.e., fixed costs) in the production process.
Answer (A) is incorrect because The degree of financial leverage is a measure of the change in earnings available to common stockholders associated with a given change in operating earnings.
Answer (C) is incorrect because The degree of total leverage is the multiple of the degree of operating leverage and the degree of financial leverage. Other things being equal, DOL is higher if the degree of total leverage is higher.
Answer (D) is incorrect because The degree of total leverage is the multiple of the degree of operating leverage and the degree of financial leverage. Other things being equal, DOL is higher if the degree of total leverage is higher.
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