The degree of operating leverage in a company is smallest at the break-even point and increases as sales rise.

Question

Quizplus · Accepted Answer

The degree of operating leverage is highest at the break-even point because at this point, a small change in sales results in a large change in operating income due to the high proportion of fixed costs. As sales rise beyond the break-even point, the degree of operating leverage decreases because the proportion of variable costs increases, reducing the sensitivity of operating income to changes in sales.

The Degree of Operating Leverage in a Company Is Smallest