The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating profit.

Question

Quizplus · Accepted Answer

The degree of operating leverage measures the sensitivity of operating profit to changes in sales volume. It is calculated by dividing the percentage change in operating profit by the percentage change in sales revenue. By using this formula, managers can forecast the potential effect of sales changes on operating profits. Therefore, the statement is true.

The Degree of Operating Leverage at a Specific Level of Sales