A coworker is in charge of a project that has a degree of operating leverage of 2.0. What will happen to the operating cash flows if your coworker decreases the number of units sold by 10 percent?
A) 10 percent decrease
B) 20 percent decrease
C) 5 percent increase
D) 10 percent increase
E) 20 percent increase

Question

Quizplus · Accepted Answer

With a degree of operating leverage of 2.0, a 10 percent decrease in the number of units sold will result in a 20 percent decrease in operating cash flows. The degree of operating leverage amplifies the effect of sales volume changes on operating income.

A Coworker Is in Charge of a Project That Has