If all other variables remain the same and a company experiences a change in fixed expense levels which of the following statements regarding the degree of operating leverage (DOL) is correct?
A) An increase in fixed expenses will result in a decrease in the degree of operating leverage.
B) An increase in fixed expenses will result in no change to the degree of operating leverage.
C) A decrease in fixed costs and expenses will result in a higher degree of operating leverage.
D) A decrease in fixed costs and expenses will result in a lower degree of operating leverage.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as contribution margin divided by operating income. When fixed costs decrease, this will result in higher operating income with no change to contribution margin. Dividing a contribution margin that is unchanged by an operating income that has increased will result in a lower degree of operating leverage.

If All Other Variables Remain the Same and a Company