Illinois Tool Company's (ITC) fixed operating costs are $1,260,000. Its variable costs average 70% of the price of its products. The firm currently has sales revenue of $9 million per year. What is ITC's degree of operating leverage?

A) 1.60
B) 1.875
C) 3.0
D) None of the above

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a firm can increase its profits by increasing sales.

Fixed Operating Costs

Expenses that do not change with the volume of production, such as salaries and rent.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.