As fixed operating costs increase and all other factors are held constant, the degree of operating leverage will
A) increase.
B) decrease.
C) remain unchanged.
D) change in an undetermined direction.

Question

Quizplus · Accepted Answer

The degree of operating leverage measures the sensitivity of a company's operating income to changes in its sales. As fixed operating costs increase, the contribution margin (sales minus variable costs) per unit sold increases, and therefore any increase in sales will have a greater impact on operating income. This results in a higher degree of operating leverage.

As Fixed Operating Costs Increase and All Other Factors Are