A firm with high operating leverage is expected to:
A) have high variable costs.
B) have low fixed costs.
C) have a high degree of profitability.
D)perform better when sales are high.

Question

Quizplus · Accepted Answer

A firm with high operating leverage has high fixed costs and low variable costs. This means that when sales increase, there is a significant increase in profits because the fixed costs are spread over a larger volume of sales. Conversely, when sales are low, the firm may struggle to cover its fixed costs and may incur losses. Therefore, high operating leverage firms perform better when sales are high.

A Firm with High Operating Leverage Is Expected To