Company X has a degree of operating leverage of 10, whereas, Company Y has a degree of operating leverage of 5. Each company has the same level of sales.
Which of the following statements is true?
A) If sales increase by 10%, Company Y would have a higher increase in before-tax profit
B) Company X has a higher relative amount of fixed costs in its cost structure than does Company Y.
C) If sales decrease by 10%, Company X would have a lower decrease in before-tax profit.
D) Company Y has a higher relative amount of fixed costs in its cost structure than does Company X.
Correct Answer:
Verified
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