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24 April, 18:45

All else being equal, a company with a low operating leverage will have:

A. relatively high contribution margin ratio.

B. relatively high fixed costs.

C. relatively high variable costs

D. relatively high risk.

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  1. 24 April, 19:42
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    c) relatively high variable costs

    Explanation:

    Operating leverage is a ratio that is used to analyze and understand the cost structure of a business. It gives the relation between the variable and fixed cost to the the total cost of running the business.

    A business with a large amount of fixed cost relative to variable is said to have a high operating leverage. For such business, operating income would be more volatile because the operating income would not increase in commensurate proportion as sales revenue.

    And a company with low operating leverage has low amount of fixed cost relative to variable cost and therefore a relatively high variable costs

    Operating leverage is calculated as

    Contribution / Earnings before interest and Tax
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