If the degree of operating leverage is 4, then one percent change in quantity sold should result in a four percent change in 1

Finance Dec 02, 2020

If the degree of operating leverage is 4, then one percent change in quantity sold should result in a four percent change in

1. Contribution margin

2. Revenue

3. Variable costs

4. Net income

Expert Solution

The Correct answer is Option 1 (Contribution margin)

Degree of Operating leverage = Contribution Margin / Operating income

Degree of operating leverage shows how much operating income will change in response to a percentage change in sales. Therefore, 1% change in sales will result in 4% change in Contribution margin.

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