DeGiaimo Co.has an operating leverage of 5.If next year's sales are expected to increase by 10%, then the company's operating income will increase by 50%.

Question

Quizplus · Accepted Answer

Operating leverage measures the sensitivity of a company's operating income to changes in sales. A higher operating leverage means that a small change in sales can lead to a larger change in operating income. In this case, the operating leverage of 5 means that a 10% increase in sales will result in a 50% increase in operating income (5 x 10% = 50%). Therefore, the statement is true.