If fixed costs rise while other variables stay constant
A) the break-even point rises.
B) the degree of operating leverage increases.
C) total profit declines.
D) All of the options are true.

Question

Quizplus · Accepted Answer

When fixed costs increase while all other factors remain constant, the break-even point rises because more units must be sold to cover the higher fixed costs. The degree of operating leverage increases because a higher proportion of costs are fixed, making profits more sensitive to changes in sales volume. Total profit declines because the higher fixed costs reduce the margin on each unit sold, assuming sales prices and variable costs remain unchanged.

If Fixed Costs Rise While Other Variables Stay Constant