Degree of operating leverage should be computed only over a profitable range of business operations.

Question

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The degree of operating leverage (DOL) is a measure of how sensitive net operating income is to a percentage change in sales revenue. It is important to compute DOL only over a profitable range of business operations because it measures the relationship between sales revenue and operating income for a given level of fixed costs. If a company operates in a loss range, its DOL may not be reflective of its true operating structure and may provide misleading information.

Degree of Operating Leverage Should Be Computed Only Over a Profitable