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A negative operating leverage at a particular sales level implies:
AFirm is below break-even (losses)
BFirm is making profit
CFirm has no fixed costs
DFirm has no variable costs
Answer & Solution
Correct answer: A. Firm is below break-even (losses)
1. When sales fall below BEP, EBIT becomes negative.
2. DOL = Contribution / EBIT yields a negative value.
3. Indicates the firm is operating in the loss region.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3.1_
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