Question

all else being equal, a company with a high operating leverage will have

All else being equal, a company with a high operating leverage will have relatively low risk. relatively high contribution margin ratio. relatively high variable costs. relatively low fixed costs.

Answer 1

Correct answer--------Relatively high contribution margin ratio

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A company with high operating leverage will have high fixed cost and high contribution margin ratio but low variable cost. Provided below is an example to show this

	Company A	Company B
Sales	$        500,000.00	$        500,000.00
Variable cost	$        370,000.00	$        100,000.00
Contribution margin	$        130,000.00	$        400,000.00
Fixed cost	$        100,000.00	$        370,000.00
Net operating income	$          30,000.00	$          30,000.00
Operating leverage (Contribution margin/Operating income)	4.33	13.33