The greater the total fixed operating costs of a firm, the greater the degree of operating leverage and the greater the degree of combined leverage.

Question

Quizplus · Accepted Answer

This statement is true. As fixed costs increase, a larger proportion of a company's costs become fixed rather than variable, resulting in a higher degree of operating leverage (which measures the sensitivity of a company's operating income to changes in revenue). This, in turn, increases the degree of combined leverage (which measures the sensitivity of a company's net income to changes in revenue).

The Greater the Total Fixed Operating Costs of a Firm