Other things being equal, the higher the degree of operating leverage, the _________ profit opportunity with increased sales and __________ risk of loss with a decrease in sales.

Question

Quizplus · Accepted Answer

Operating leverage amplifies the effects of sales fluctuations on a company's profits. A higher degree of operating leverage means that a company will experience a greater profit opportunity with increased sales due to fixed costs spreading over more units, but it also faces a higher risk of loss if sales decrease, as those fixed costs remain constant.

Other Things Being Equal, the Higher the Degree of Operating