A company with a degree of operating leverage of 4 would expect income to increase by 200% if sales increased from $100,000 to $150,000.

Question

Quizplus · Accepted Answer

Operating leverage is the measure of how much a company uses fixed costs in its operations. The degree of operating leverage is calculated as a percentage increase in income for a given percentage increase in sales. In this case, if sales increase by 50% (from $100,000 to $150,000), and the degree of operating leverage is 4, then income would increase by 200% (4 x 50%). Therefore, the statement is true.

A Company with a Degree of Operating Leverage of 4