If a company has very low operating leverage (i.e. a low proportion of fixed costs the cost structure) and no changes are expected in operations
A) percentage change income statement percentages can serve as the basis for projecting operating expenses.
B) using common-size income statement percentages will overstate future projected operating expenses.
C) using common-size income statement percentages will understate future projected operating expenses.
D) using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses.

Question

Quizplus · Accepted Answer

If a company has very low operating leverage and no changes are expected in operations, then using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses. This is because the company has a low proportion of fixed costs which means that changes in revenue will not have a significant impact on operating expenses. Hence, common-size income statement percentages can be a useful tool for projecting future operating expenses.

If a Company Has Very Low Operating Leverage (I