The degree of operating leverage
A) does not provide a reliable measure of a company's earnings volatility.
B) cannot be used to compare companies.
C) is computed by dividing total contribution margin by net income.
D) measures how much of each sales dollar is available to cover fixed expenses.

Question

Quizplus · Accepted Answer

The degree of operating leverage is computed by dividing total contribution margin by net income. This metric helps in understanding how a company's operating income changes with a change in its sales volume, highlighting the impact of fixed and variable costs on profitability.

The Degree of Operating Leverage