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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.

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ANSWERS

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 ...

Solution Summary

The solution examines if the profits are larger is smaller if firm increased operating leverages.

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