Higher operating leverage:
A) Should be lowered
B) Increases risk of loss if operations are near the breakeven point
C) Reduces risk of loss if operations are near the breakeven point
D) Does not affect the risk of loss regardless of the level of operations

Question

Quizplus · Accepted Answer

Higher operating leverage means that a larger proportion of costs are fixed, which results in higher risk of loss if operations are near the breakeven point. This is because even a small decrease in sales can lead to a significant decrease in profits or even losses. Therefore, higher operating leverage should be managed to mitigate this risk.

Higher Operating Leverage