Catarpillar Ltd. and Butterfly Inc. have operating leverages of 40% and 50% respectively. Which of the following statements is most likely to be true?

Question

Quizplus · Accepted Answer

Operating leverage is the ratio of fixed costs to total costs, where a higher operating leverage implies a higher proportion of fixed costs. Therefore, Butterfly Inc., with a higher operating leverage, has a higher proportion of fixed costs compared to Catarpillar Ltd. Hence, option D is the correct choice. The variable cost structure is not determined by operating leverage, so options A, B, and C are incorrect.