An increase in fixed operating costs will result in ________ in the degree of operating leverage.
A) a decrease
B) an increase
C) no change
D) an undetermined change

Question

Quizplus · Accepted Answer

An increase in fixed operating costs will increase the degree of operating leverage. This is because fixed costs do not change with changes in sales volume. As sales increase, the portion of fixed costs allocated to each unit of sales decreases, leading to a higher contribution margin per unit. This results in a higher degree of operating leverage, which measures the sensitivity of operating income to changes in sales.

An Increase in Fixed Operating Costs Will Result in ________