A company with high operating leverage will experience a larger reduction in net operating income in a period of declining salesvolume than a company with low operating leverage.

Question

Quizplus · Accepted Answer

A company with high operating leverage has a higher proportion of fixed costs compared to variable costs. This means that as sales volume declines, the fixed costs remain the same, causing a larger reduction in net operating income compared to a company with low operating leverage, which has a higher proportion of variable costs that decrease with declining sales volume.

A Company with High Operating Leverage Will Experience a Larger