If company A has a higher degree of operating leverage than company B, then:
A)company A is more profitable.
B)company A's variable expenses are high.
C)company A is less risky.
D)company A's profits are more sensitive to percentage changes in sales.

Question

Quizplus · Accepted Answer

A higher degree of operating leverage means that a larger portion of the company's costs are fixed costs. As a result, a small change in sales can cause a larger change in profits. Therefore, company A's profits are more sensitive to percentage changes in sales.

If Company a Has a Higher Degree of Operating Leverage