An entity with a higher proportion of fixed costs to variable costs compared to an entity with a lower proportion of fixed to variable costs is regarded as:
A) having a lower operating leverage.
B) equal in risk.
C) more risky.
D) less risky.

Question

Quizplus · Accepted Answer

An entity with a higher proportion of fixed costs to variable costs is considered to have higher operating leverage. This means that small changes in sales can have a significant impact on the entity's profitability. Therefore, it is more risky compared to an entity with a lower proportion of fixed to variable costs.

An Entity with a Higher Proportion of Fixed Costs to Variable