Operating leverage increases as the proportion of __________________ increases.
A)Variable costs
B)Fixed costs
C)Assets
D)Equity

Question

Operating leverage increases as the proportion of __________________ increases. ​
A)Variable costs​
B)Fixed costs​
C)Assets​
D)Equity​

Quizplus · Accepted Answer

Operating leverage is the degree to which a company uses fixed costs in its operations. Therefore, as the proportion of fixed costs increases, operating leverage also increases. This is because a higher proportion of fixed costs means that changes in revenue will have a greater impact on the company's profits. In contrast, a higher proportion of variable costs means that changes in revenue will have a smaller impact on profits because the variable costs will also increase or decrease with revenue. Therefore, option B - Fixed costs - is the correct answer.

Operating Leverage Increases as the Proportion of __________________ Increases