Which of the following is a characteristic of a business whose operating income level is relatively high compared to its contribution margin?
A) The business has relatively high fixed costs.
B) The business has a relatively high degree of operating leverage (DOL).
C) The business has relatively low variable costs.
D) The business has relatively low fixed costs.

Question

Quizplus · Accepted Answer

If a company has operating income that is relatively high compared to its contribution margin, its fixed costs are relatively low, since operating profit is equal to contribution margin minus fixed costs. The degree of operating leverage (DOL) in such cases is relatively low, since DOL is equal to contribution margin divided by operating income, and dividing by a higher denominator will result in a lower DOL.

Which of the Following Is a Characteristic of a Business