Increasing fixed costs and assuming no other changes will have what impact on a company's degree of operating leverage (DOL)?
A) DOL will rise.
B) DOL will drop.
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. An increase in fixed costs will result in lower operating income. Dividing a contribution margin that is unchanged by an operating income that has decreased will result in a higher degree of operating leverage. In other words, DOL will increase.

Increasing Fixed Costs and Assuming No Other Changes Will Have