What happens to a firm with high operating leverage when the overall level of sales is very high?
A) The firm will have higher levels of fixed costs.
B) The firm will enjoy high profits.
C) The firm will not break even in accounting terms.
D)The firm will have a reduced level of depreciation.

Question

Quizplus · Accepted Answer

A firm with high operating leverage has a high proportion of fixed costs compared to variable costs. When overall sales are very high, the firm will be able to spread these fixed costs over a larger revenue base, resulting in higher profits.

What Happens to a Firm with High Operating Leverage When