Assuming no other variables change, decreasing fixed costs will have what impact on a company's degree of operating leverage (DOL)?
A) DOL will increase.
B) DOL will decrease.
C) DOL will be unchanged.
D) DOL is impacted only by changes in variable costs.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as contribution margin divided by operating income. When fixed costs decrease, operating income will increase. Dividing a contribution margin that is unchanged by an operating income that has increased will result in a lower degree of operating leverage.

Assuming No Other Variables Change, Decreasing Fixed Costs Will Have