If a Company Has a Degree of Operating Leverage of 2.0

question 141

Multiple Choice

If a company has a degree of operating leverage of 2.0 and sales increase by 25%,then:

• A)profit will increase by 20%
• B)total variable costs will not change
• C)profit will increase by 50%
• D)total variable costs will increase by 50%

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Definitions:

Feasible Terms

Conditions or parameters that are possible and practical to meet, often used in negotiations or agreements.

Constant Costs

Costs that do not change in total over a wide range of production activities or time periods.

Cost Ratios

The relationship between two elements of cost, showing how one cost compares to another, often used for analysis or efficiency assessment.

Production Possibilities Curves

A graphical representation showing the maximum number of goods or services that can be produced with limited resources.