Which of the following statements regarding a relatively high degree of operating leverage is correct?
A) Firms with higher operating leverage will see a slower decline in profits as sales volume decreases.
B) Firms with higher operating leverage will see a steeper increase in variable costs as sales volume increases.
C) Firms with higher operating leverage will see a steeper increase in operating profit as sales volume increases.
D) Firms with higher operating leverage will see a steeper increase in fixed costs and expenses as sales volume increases.

Question

Quizplus · Accepted Answer

The degree of operating leverage acts as a multiplier of sales revenues changes. As the degree of operating leverage increases, so does the multiplier effect. Therefore, firms with higher operating leverage will see a steeper increase in operating profit as sales volume increases.

Which of the Following Statements Regarding a Relatively High Degree