In companies with high operating leverage,small changes in sales volume result in large changes in net income.

Question

Quizplus · Accepted Answer

High operating leverage means a company has high fixed costs relative to variable costs. This means that a small increase in sales volume can lead to a much larger increase in net income, as the fixed costs remain the same but are spread over a larger revenue base. Conversely, a small decrease in sales volume can lead to a much larger decrease in net income.

In Companies with High Operating Leverage,small Changes in Sales Volume