The ratio of contribution margin / profit is used to compute a company's:
A) Expected fixed costs
B) Degree of operating leverage
C) Margin of safety
D) Margin of safety percentage

Question

Quizplus · Accepted Answer

The ratio of contribution margin to profit is used to compute a company's degree of operating leverage (DOL). DOL measures the sensitivity of a company's operating income to changes in sales. Higher DOL indicates higher fixed costs in the company's operations. Therefore, the correct answer is B) Degree of operating leverage.

The Ratio of Contribution Margin / Profit Is Used to Compute