Operating leverage is highest in companies that have:
A) a service rather than a manufacturing emphasis
B) virtually no fixed costs
C) equal variable costs and fixed costs
D) a high proportion of variable costs relative to their fixed costs
E) a high proportion of fixed costs relative to their variable costs

Question

Quizplus · Accepted Answer

Operating leverage refers to the degree of fixed costs in a company's cost structure. The higher the proportion of fixed costs relative to variable costs, the higher the operating leverage. Therefore, option E - companies with a high proportion of fixed costs relative to variable costs - has the highest operating leverage.

Operating Leverage Is Highest in Companies That Have