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14 April, 07:56

A company with high operating leverage:

a. is less sensitive to changes in sales.

b. has an equal proportion of fixed and variable costs.

c. has a greater proportion of fixed costs to variable costs.

d. has a greater proportion of variable costs to fixed costs.

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  1. 14 April, 09:12
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    Answer: c. has a greater proportion of fixed costs to variable costs

    Explanation: Operating leverage is a measure a firm's fixed costs as a percentage of its total costs. In order words, it measures the amount of debt the firm uses in finance its operations.

    A company with high operating leverage is one with a greater proportion of fixed costs to variable costs. As a result, the firm is affected by volume of sales each month (since it must attain sufficient sales volume to cover its substantial fixed costs) even though it earns a large profit on each incremental sale.
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