Suppose a Firm Increases Its Sales Using Existing Fixed Assets

question 26

Multiple Choice

Suppose a firm increases its sales using existing fixed assets. Everything else equal, what effect will the increase in sales have on the firm's degree of operating leverage (DOL) ?

• A)The DOL should increase.
• B)The DOL should decrease.
• C)The DOL should not change, because the amount of fixed asset does not change.
• D)The DOL should increase if fixed operating costs represent a significant proportion of total operating costs; otherwise, the DOL should decrease.
• E)Because the fixed operating costs are not know, the impact on DOL cannot be determined.

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Definitions:

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