A company with high operating leverage:

a. is less sensitive to changes in sales.

b. has an equal proportion of fixed and variable costs.

c. has a greater proportion of fixed costs to variable costs.

d. has a greater proportion of variable costs to fixed costs.

Question

Chris Salazar

Business

15 September, 11:15

A company with high operating leverage:

a. is less sensitive to changes in sales.

b. has an equal proportion of fixed and variable costs.

c. has a greater proportion of fixed costs to variable costs.

d. has a greater proportion of variable costs to fixed costs.

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Answers (1)

Know the Answer?

Jayson Huffman · Answer 1

Answer: c. has a greater proportion of fixed costs to variable costs

Explanation: Operating leverage is a measure a firm's fixed costs as a percentage of its total costs. In order words, it measures the amount of debt the firm uses in finance its operations.

A company with high operating leverage is one with a greater proportion of fixed costs to variable costs. As a result, the firm is affected by volume of sales each month (since it must attain sufficient sales volume to cover its substantial fixed costs) even though it earns a large profit on each incremental sale.

A company with high operating leverage:a. is less sensitive to changes in sales.b. has an equal proportion of fixed and variable costs.c. has a greater proportion of fixed costs to variable costs.d. has a greater proportion of variable costs to fixed costs.

A company with high operating leverage:

a. is less sensitive to changes in sales.

b. has an equal proportion of fixed and variable costs.

c. has a greater proportion of fixed costs to variable costs.

d. has a greater proportion of variable costs to fixed costs.