In general, when fixed operating costs become a larger percentage of a company's operating costs, operating leverage increases.

Question

Quizplus · Accepted Answer

This is because a higher percentage of fixed costs means that any increase in sales or revenue will result in a larger increase in profits, due to the fact that the fixed costs remain the same. This creates higher operating leverage, which can amplify the effect of changes in sales volume on a company's profits.

In General, When Fixed Operating Costs Become a Larger Percentage