Poutine Company is considering offering long-term contracts to many of its non-contract employees (a switch from variable labour costs to fixed labour costs).What is the impact of this decision?
A)The increase in operating leverage results in greater variability in operating income.
B)The increase in operating leverage results in less variability in operating income.
C)The decrease in operating leverage results in greater variability in operating income.
D)The decrease in operating leverage results in less variability in operating income.

Question

Quizplus · Accepted Answer

Switching from variable to fixed labor costs increases operating leverage, which means that any change in sales will result in a greater change in operating income, leading to more variability in operating income.

Poutine Company Is Considering Offering Long-Term Contracts to Many of Its