The concept of operating leverage involves the use of ________ to magnify returns at high levels of operation.
A) fixed costs
B) variable costs
C) marginal costs
D) semivariable costs

Question

Quizplus · Accepted Answer

Operating leverage refers to the extent to which fixed costs are used in a company's operations. So, the use of fixed costs can magnify returns at high levels of operation. When a company has a high proportion of fixed costs relative to variable costs, the contribution margin (the difference between revenue and variable costs) will increase significantly as sales volume increases. This means that any increase in sales will have a larger impact on profits.

The Concept of Operating Leverage Involves the Use of ________