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

Business

Roxanne

17 February, 08:45

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.

+1

Answers (1)

Know the Answer?

Joyce Wilcox · 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.