Operating leverage is present when a firm has fixed operating cost.

Question

Quizplus · Accepted Answer

Operating leverage refers to the degree to which a firm's operating income changes in response to a change in its sales revenue. When a firm has fixed operating costs, a relatively small change in sales can lead to a much larger change in operating income due to the fixed costs being spread over a larger (or smaller) revenue base. This is known as high operating leverage. Thus, the statement is true.

Operating Leverage Is Present When a Firm Has Fixed Operating