Which of the following statements regarding operating leverage is correct?
A) All else the same, ﬁrms with high operating leverage have higher total ﬁxed costs.
B) It is generally easier to decrease operating leverage than it is to increase it.
C) All else the same, operating leverage will rise as output increases.
D) In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash ﬂows.
E) All else the same, the degree of operating leverage rises as the price per unit is increased.

Question

Quizplus · Accepted Answer

Operating leverage refers to the degree to which a firm uses fixed costs in its operations. All else equal, a firm with high operating leverage will have a higher proportion of fixed costs in its cost structure, which can amplify the impact of changes in sales on profits.

Which of the Following Statements Regarding Operating Leverage Is Correct