Which of the Following Statements Is CORRECT

question 19

Multiple Choice

Which of the following statements is CORRECT?

• A)The degree of operating leverage (DOL) depends on a company's fixed costs, variable costs, and sales. The DOL formula assumes (1) that fixed costs are constant and (2) that variable costs are a constant proportion of sales.
• B)The degree of total leverage (DTL) is equal to the DOL plus the degree of financial leverage (DFL).
• C)Arithmetically, financial leverage and operating leverage offset one another so as to keep the degree of total leverage constant. Therefore, the formula shows that the greater the degree of financial leverage, the smaller the degree of operating leverage.
• D)For a given change in sales, the corresponding percentage change in net income could be more or less than the percentage change in operating income.
• E)The degree of total leverage (DTL) is equal to the DFL divided by the degree of operating leverage (DOL).

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Definitions:

Operations

The activities involved in running a business, production, or system effectively and efficiently.

Contribution Margin

It refers to the amount of revenue remaining after deducting variable costs, which can contribute to covering fixed costs and generating profit.

Operations

The day-to-day activities involved in running a business, focusing on creating and delivering products or services.

Fixed Manufacturing Overhead

Expenses related to production that remain constant, regardless of the production volume, such as maintenance of machinery and property taxes.