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Question
Higher Operating Leverage is related to the use of higher ________________.
Higher Operating Leverage is related to the use of higher ________________.
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Solution
The correct option is D Fixed Cost
Operating leverage is a measurement of the degree to which a firm incurs a combination of fixed cost and variable cost. Operative leverage can be calculated by dividing the contribution of the company by net income (EBIT). If the companies variable cost is higher than the fixed cost, the company is said to be less leverage. On the opposite side, if the fixed cost is higher than the variable cost, its a high leverage situation.
Operating leverage is a measurement of the degree to which a firm incurs a combination of fixed cost and variable cost. Operative leverage can be calculated by dividing the contribution of the company by net income (EBIT).
If the companies variable cost is higher than the fixed cost, the company is said to be less leverage. On the opposite side, if the fixed cost is higher than the variable cost, its a high leverage situation.
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