An increase in the proportion of a project's costs that are fixed will increase the degree of operating leverage for the project.

Question

Quizplus · Accepted Answer

The degree of operating leverage is calculated as the contribution margin (sales revenue minus variable costs) divided by the operating income. As fixed costs do not change with changes in sales volume, an increase in the proportion of fixed costs will increase the contribution margin and therefore increase the degree of operating leverage.

An Increase in the Proportion of a Project's Costs That