Which one of the following could lower the risk of a project by lowering the degree of operating leverage?
A) You could hire temporary workers from an employment agency rather than hiring part-time employees.
B) You could use sub-contractors to produce sub-assemblies of your product rather than purchasing new equipment to do the work in-house.
C) You could lease equipment on a long-term basis rather than buying the equipment.
D) You could lower the projected selling price per unit.
E) You could change the production method to one which relies more on fixed costs and less on variable costs than the current proposed method of production.

Question

Quizplus · Accepted Answer

Using sub-contractors to produce sub-assemblies instead of purchasing new equipment to do the work in-house can lower the risk of a project by reducing the degree of operating leverage. This approach shifts some fixed costs to variable costs, as payments to sub-contractors are typically variable costs that vary with the level of production, unlike the fixed costs associated with owning equipment.

Which One of the Following Could Lower the Risk of a Project