Companies that have higher operating leverage find that their profit level is more responsive to changes in sales volume than if operating leverage was low.

Question

Quizplus · Accepted Answer

This is because higher operating leverage means that a larger proportion of the company's costs are fixed, rather than variable. As a result, when sales increase, the company's revenue will increase but the fixed costs will remain the same, leading to a higher profit. However, if sales decrease, the company's revenue will decrease but the fixed costs will remain the same, leading to a lower profit. So, changes in sales volume have a greater impact on profit for companies with higher operating leverage.

Companies That Have Higher Operating Leverage Find That Their Profit