A 1% improvement in price results in an 11% improvement in operating profits.

Question

Quizplus · Accepted Answer

This statement reflects the concept of "operating leverage," which means that a small change in revenue or price can result in a proportionally larger change in operating profits due to fixed costs remaining constant. Specifically, a 1% increase in price would result in a 1.1% increase in revenue (assuming demand stays constant), and if operating costs remain fixed, then the operating profit margin would also increase by 11%.

A 1% Improvement in Price Results in an 11% Improvement