A degree of operating leverage of 1.5 means that a:
A) 1.5 percent change in operating earnings results in a 1.5 percent change in net income.
B) 1 percent change in operating earnings results in a 1.5 percent change in units produced and sold.
C) 1 percent change in units produced and sold results in a 1.5 percent change in operating earnings.

Question

Quizplus · Accepted Answer

A degree of operating leverage of 1.5 means that a 1 percent change in the quantity of units produced and sold results in a 1.5 percent change in operating earnings. This measure indicates how a change in sales volume will affect operating income due to fixed costs in the production process.

A Degree of Operating Leverage of 1