High operating leverage means:
A)the company has relatively high variable costs.
B)the company has relatively low fixed costs.
C)the company has relatively high fixed costs.
D)the company has a relatively low amount of debt.
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

High operating leverage refers to the degree to which a company's fixed costs contribute to its total costs. If a company has high fixed costs and low variable costs, it has high operating leverage. This means that a relatively small change in revenue can have a significant impact on the company's profits because the fixed costs still need to be covered regardless of sales volume.

High Operating Leverage Means