If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be higher in the company with a higher proportion of fixed expenses in its cost structure.

Question

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Operating leverage is the measure of how much a company's profit is affected by changes in its sales volume. A higher proportion of fixed expenses in a company's cost structure means that a larger portion of its expenses are fixed and do not change with volume changes. As a result, a company with a higher proportion of fixed expenses will experience a more significant change in net income with a change in sales volume, leading to higher operating leverage.

If Two Companies Produce the Same Product and Have the Same