Question

A company with low operating leverage

a. has relatively more fixed costs than variable costs
b. has relatively more variable costs than fixed costs
c. has an equal proportion of fixed and variable costs
d. has relatively more risk than a company with high operating leverage

Answer 1

A company with low operating leverage has relatively more fixed costs than variable costs. This means that a greater proportion of the company's total costs are fixed and do not change with variations in the level of production.

Step-by-step explanation:

A company with low operating leverage has relatively more fixed costs than variable costs. Fixed costs are expenses that do not change regardless of the level of production, such as rent or machinery costs. Variable costs, on the other hand, increase as the level of production increases, such as the cost of raw materials or labor.

Having more fixed costs compared to variable costs means that a greater proportion of the company's total costs are fixed and do not change with variations in the level of production. This can lead to higher financial risk, as the company must cover these fixed costs even if there is a decrease in sales or revenue.