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).
Answer: A
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