Hotel A’s degree of operating leverage index is 2 and Hotel B’s degree of operating leverage is 4.

Required:

a. If Hotel A’s room nights sold were to double, by what percentage would you expect its EBIT to increase?

b. Which of the two hotels is more risky with respect to its operating cost structure?

c. If management in the hotel with the more risky operating cost structure would like to reduce this risk, what steps could it take?