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 is a measure of how revenue growth translates into growth in operating income. High operating leverage means a company has a higher proportion of fixed costs in relation to its variable costs, thus firms with high operating leverage indeed have higher total fixed costs.

Which of the Following Statements Regarding Operating Leverage Is Correct