Which of the following is true of the degree of operating leverage (DOL)?
A) The higher the DOL, the closer the firm is to its financial breakeven point.
B) The higher the DOL, the lower the financial risk of the firm.
C) The lower the DOL, the higher the operating risk of the firm.
D) The higher the DOL, the closer the firm is to its operating breakeven point.
E) The higher the DOL, the higher the percentage increase in the sales.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) measures the sensitivity of operating income to changes in sales revenue. A higher DOL indicates that a small change in sales revenue will result in a larger change in operating income. This means that the firm is closer to its operating breakeven point, which is the point at which operating income is zero.

Which of the Following Is True of the Degree of Operating