If the proportion of fixed costs increases:
A) DOL falls.
B) DOL rises.
C) the NPVbreakeven level of sales declines.
D) the NPV of the cash flows declines.

Question

Quizplus · Accepted Answer

When the proportion of fixed costs increases, the Degree of Operating Leverage (DOL) rises because DOL measures the sensitivity of operating income to changes in sales, and higher fixed costs amplify this sensitivity.

If the Proportion of Fixed Costs Increases