Operating leverage is highest in companies that have ________.
A) a service rather than a manufacturing emphasis
B) virtually no fixed costs
C) equal variable and fixed costs
D) a high proportion of variable costs relative to their fixed costs
E) a high proportion of fixed costs relative to their variable costs

Question

Quizplus · Accepted Answer

Operating leverage measures the extent to which a company's total costs are fixed. The higher the proportion of fixed costs to variable costs, the higher the operating leverage. Therefore, option E, which states that companies with a high proportion of fixed costs relative to their variable costs have the highest operating leverage, is the best choice.

Operating Leverage Is Highest in Companies That Have ________