Smith Company has a degree of operating leverage of 5, while an industry competitor, Johnson Company, has a degree of operating leverage of 2. Supplied with this knowledge, pick the response below that is most typical of Johnson Company.
A) high fixed costs
B) conservative
C) large commitment to plant facilities
D) low sales.

Question

Quizplus · Accepted Answer

A low degree of operating leverage typically indicates a conservative approach with lower fixed costs and a lower commitment to plant facilities. Lower fixed costs allow for more flexibility in adjusting to changes in sales and market conditions.

Smith Company Has a Degree of Operating Leverage of 5