Operating leverage refers to the extent to which an organization's cost structure is made up of:
A)differential costs.
B)opportunity costs.
C)fixed costs.
D)relevant costs.
E)product costs.

Question

Quizplus · Accepted Answer

Operating leverage refers to the proportion of fixed costs in an organization's cost structure. A high proportion of fixed costs means that a small change in sales volume can have a significant impact on the organization's profits. This is because fixed costs remain the same regardless of the level of sales, so if sales increase, the contribution margin per unit sold will increase, leading to higher profits. Conversely, if sales decrease, the contribution margin per unit sold will decrease, leading to lower profits. Therefore, organizations with a high proportion of fixed costs have high operating leverage, as they are more sensitive to changes in sales volume.

Operating Leverage Refers to the Extent to Which an Organization's