A managerial preference for a very low degree of operating leverage might indicate that
A)an increase in sales volume is expected.
B)a decrease in sales volume is expected.
C)the firm is very unprofitable.
D)the firm has very high fixed costs.

Question

Quizplus · Accepted Answer

A high degree of operating leverage means that a small change in sales will lead to a significant change in profits, indicating higher risk. Therefore, a managerial preference for a low degree of operating leverage suggests that they expect a decrease in sales volume and want to reduce the risk of losses.

A Managerial Preference for a Very Low Degree of Operating