The degree of operating leverage in a company is largest at the break-even point and decreases as sales rise.

Question

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The degree of operating leverage (DOL) measures the sensitivity of net operating income to changes in sales volume. It is largest at the break-even point because at this point, any increase in sales will result in proportionately large changes in net operating income. As sales continue to rise, the DOL decreases because fixed costs are spread over a larger number of units, resulting in smaller changes in net operating income for a given change in sales.

The Degree of Operating Leverage in a Company Is Largest