You are analyzing Barroz Corporation and Newton Corporation and have concluded that Barroz has a higher operating leverage factor than Newton.Which one of the following choices correctly depicts (1) the relative use of ﬁxed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales?

Question

Quizplus · Accepted Answer

A higher operating leverage factor suggests that Barroz Corporation has a higher proportion of fixed costs compared to variable costs. Additionally, a higher operating leverage factor means that Barroz Corporation's income will change by a greater percentage for a given percentage change in sales compared to Newton Corporation. Choice A reflects both of these characteristics.

You Are Analyzing Barroz Corporation and Newton Corporation and Have