All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high variable costs and low fixed costs than in a company with high fixed costs and low variable costs.

Question

Quizplus · Accepted Answer

In periods of increasing sales, a company with high fixed costs and low variable costs will see a more rapid increase in net operating income due to the operating leverage effect, where fixed costs are spread over a larger sales volume, increasing profitability.

All Other Things the Same, in Periods of Increasing Sales