- Financial Accounting & Bookkeeping
- Revenue Recognition
- Sales Revenue
Profits larger or smaller if firm increased operating leverage
Changes in sales can cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.
First, the degree of operating leverage (DOL) measures how much a $1 increase in revenue affects the company's operating income. DOL is measured by
Contribution margin ...
The solution examines if the profits are larger is smaller if firm increased operating leverages.