Which of the following is not true with respect to operating leverage?
A)Higher operating leverage insulates a firm from losses in bad times.
B)Firms with higher operating leverage have a larger contribution from each sale, so they accumulate profits or losses faster as they move away from the breakeven point in sales.
C)Increased operating leverage increases business risk.
D)Virtually all firms have at least some operating leverage.

Question

Quizplus · Accepted Answer

This statement is not true because higher operating leverage actually makes a firm more vulnerable to losses in bad times. This is because a higher proportion of the firm's costs are fixed, so if sales decline, the firm's losses can quickly magnify.

Which of the Following Is Not True with Respect to Operating