In a company with low operating leverage, ________.
A) fixed costs are more than the contribution margin
B) contribution margin and operating income are inversely related
C) there is a higher possibility of net loss than a higher-leveraged firm
D) less risk is assumed than in a highly leveraged firm

Question

Quizplus · Accepted Answer

In a company with low operating leverage, the fixed costs are low compared to the contribution margin. As a result, even if there is a decrease in sales, the company still has enough contribution margin to cover its fixed costs and generate a profit. Therefore, a company with low operating leverage assumes less risk than a highly leveraged firm.

In a Company with Low Operating Leverage, ________