The degree of operating leverage will increase if a firm decides to compensate its sales representatives with a fixed salary and bonus rather than with a pure percent-of-sales commission.

Question

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A fixed salary and bonus payment structure means that the variable cost component of compensation for sales representatives is reduced, while the fixed cost component is increased. This results in a higher degree of operating leverage, as the firm's total cost structure becomes more heavily skewed towards fixed costs.

The Degree of Operating Leverage Will Increase If a Firm