The higher fixed costs are as a percentage of total costs:
A)The lower the operating leverage.
B)The greater the operating leverage.
C)Financial leverage remains unchanged.
D)Operating leverage remains unchanged.
E)None of the above.

Question

Quizplus · Accepted Answer

Operating leverage refers to the ratio of fixed costs to variable costs. When fixed costs are a higher percentage of total costs, the operating leverage decreases. This means that changes in sales will have a smaller impact on profits, as a higher proportion of costs are fixed regardless of sales levels. Therefore, option A is correct.

The Higher Fixed Costs Are as a Percentage of Total