As additional equipment is purchased, the level of fixed costs tends to _____ and the degree of operating leverage tends to _____
A) Remain constant; remain constant.
B) Rise; rise.
C) Rise; fall.
D) Fall; rise.
E) Fall; fall.

Question

Quizplus · Accepted Answer

When additional equipment is purchased, fixed costs increase because the equipment represents a one-time or fixed expense. The degree of operating leverage also increases because with higher fixed costs, a small change in sales can lead to a larger change in operating income.

As Additional Equipment Is Purchased, the Level of Fixed Costs