a.?As a firm increases operating leverage by adding more fixed expenses to its cost structure, the break-even point in terms of units and sales dollars also increases.  Thus, a principal risk associated with greater operating leverage is that a decrease in sales—which leads to decreases in contribution margin, operating income, and cash flows—may result in a relatively greater inability to cover fixed expenses.  Why?  Because such firms have less variable costs (as a result of investment in relatively more fixed costs) leading to higher contribution margins.  Therefore, for each sale lost, these firms will be losing relatively more contribution margin toward covering an already relatively inflated fixed cost pool.  This larger margin loss, as it flows through to operating income, also equates to a greater decline in operating income.  So in the end, even a small drop in sales volume, which doesn’t have a very material impact on a less leveraged firm, can take on significance as it materially impacts a more leveraged firm.  Another risk associated with operating leverage relates to the loss of flexibility that occurs when fixed costs (e.g., robotics) are substituted for variable costs (e.g., labor).  Machines cannot be laid off during the slow season.