Poutine Company is considering offering long-term contracts to many of its non-contract employees (a switch to fixed labour costs from variable labour costs).What is the impact of this decision?
A) The increase in operating leverage results in greater variability in operating income.
B) The increase in operating leverage results in less variability in operating income.
C) The decrease in operating leverage results in greater variability in operating income.
D) The decrease in operating leverage results in less variability in operating income.

Question

Quizplus · Accepted Answer

Switching to fixed labor costs increases operating leverage, leading to greater variability in operating income due to higher fixed costs.

Poutine Company Is Considering Offering Long-Term Contracts to Many of Its