Which of the following statements regarding the degree of operating leverage (DOL) is correct?
A) An increase in fixed costs, with no other changes, will result in a decrease in the degree of operating leverage.
B) An increase in operating income will have no impact on the degree of operating leverage.
C) A decrease in operating income will result in a decrease in the degree of operating leverage.
D) An increase in fixed costs, with no other changes, will result in an increase in the degree of operating leverage.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as contribution margin divided by operating income. When fixed costs increase, operating income drops, and the denominator of the equation drops. Therefore, when fixed costs increase and operating income drops, degree of operating leverage increases.

Which of the Following Statements Regarding the Degree of Operating