Melissa Manager expects next year's degree of operating leverage to increase. Which of the following statements is consistent with Melissa's expectations?
A)Next year's activity level is budgeted to be lower than this year's
B)Next year's total fixed costs are expected to be lower than this year's
C)Next year's selling price is expected to increase
D)Next year's variable costs per unit are expected to decrease

Question

Quizplus · Accepted Answer

A lower activity level increases the degree of operating leverage because fixed costs are spread over fewer units, increasing the proportion of fixed costs in the cost structure.

Melissa Manager Expects Next Year's Degree of Operating Leverage to Increase