If a Company Would Like to Increase Its Degree of Operating

question 119

Multiple Choice

If a company would like to increase its degree of operating leverage it should ________.

• A) increase its sales relative to its fixed costs
• B) increase its sales relative to its variable costs
• C) increase its variable costs relative to its fixed costs
• D) increase its fixed costs relative to its variable costs

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Definitions:

Mixed Costs

Expenses comprising both fixed and variable components, changing in total with the level of activity but not proportionately.

Merchandising Firm

A business that purchases finished goods for resale in order to make a profit, differentiating itself from manufacturing firms and service firms.

Gross Margin

The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales revenue.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted; a measure of profitability.