A high degree of operating leverage suggests that

Question

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A high degree of operating leverage means that fixed costs make up a significant portion of a company's total costs. As a result, even a small increase in sales can lead to a large increase in earnings before interest and taxes (EBIT) because the company does not have to spend much more on variable costs while the fixed costs are already covered. This relationship between sales and EBIT is reflected in choice A.

A High Degree of Operating Leverage Suggests That