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.

Question

Business

Zackary Brandt

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.

+2

Answers (1)

Know the Answer?

Fletcher Clarke · Answer 1

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

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 costsD. relatively high risk.

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.