Which of the following industry has low operating leverage?
A) Steel
B) Railroads
C) Electric utilities
D) Autos

Question

Quizplus · Accepted Answer

Electric utilities have low operating leverage because they have high fixed costs and low variable costs. They need to maintain their infrastructure and equipment to generate and deliver electricity, but once that is done, the marginal cost of producing and delivering electricity is relatively low. This means that their operating costs do not increase significantly with changes in sales volume, leading to low operating leverage. On the other hand, industries such as steel and autos have high operating leverage because they have high fixed costs and high variable costs, meaning that they experience a significant increase in operating costs with changes in sales volume. Railroads have moderate operating leverage as they have high fixed costs but lower variable costs than steel and autos.

Which of the Following Industry Has Low Operating Leverage