Increasing fixed costs will have what impact on a company's degree of operating leverage (DOL)?
A) DOL will increase.
B) DOL will decrease.
C) DOL will be unchanged.
D) DOL is impacted only by changes in variable costs.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as contribution margin divided by operating income. When fixed costs increase, this will result in lower operating income. Therefore, dividing a contribution margin that is unchanged by an operating income that has decreased will result in a higher degree of operating leverage, and DOL will increase.

Increasing Fixed Costs Will Have What Impact on a Company's