The degree of operating leverage depends on the base level of sales used as a point of reference. The closer the base sales level used is to the operating breakeven point, the greater the operating leverage.

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Quizplus · Accepted Answer

This statement is true. The degree of operating leverage is a measure of how sensitive a company's operating income is to changes in sales volume. It is calculated as the percentage change in operating income divided by the percentage change in sales. This sensitivity varies depending on the level of sales used as a base reference point. When the base sales level is closer to the operating breakeven point, small changes in sales can have a larger impact on operating income, resulting in a higher degree of operating leverage.

The Degree of Operating Leverage Depends on the Base Level