Operating gearing refers to the proportion of fixed costs in a company's cost structure. When a company automates its production line, it typically replaces variable costs (like piece-rate labor) with fixed costs (like machinery and equipment).

Here are the steps to answer the question:

1. Understand the concept of operating gearing: Operating gearing is a measure of a company's fixed costs versus its variable costs. High operating gearing means the company has a high proportion of fixed costs, while low operating gearing means it has a high proportion of variable costs.

2. Analyze the situation: The company is moving from a piece-rate system (a variable cost, as it changes with the level of output) to an automated production line (a fixed cost, as it doesn't change with the level of output).

3. Apply the concept to the situation: By replacing variable costs with fixed costs, the company is increasing its proportion of fixed costs

Question

Operating gearing refers to the proportion of fixed costs in a company's cost structure. When a company automates its production line, it typically replaces variable costs (like piece-rate labor) with fixed costs (like machinery and equipment).

Here are the steps to answer the question:

1. Understand the concept of operating gearing: Operating gearing is a measure of a company's fixed costs versus its variable costs. High operating gearing means the company has a high proportion of fixed costs, while low operating gearing means it has a high proportion of variable costs.

2. Analyze the situation: The company is moving from a piece-rate system (a variable cost, as it changes with the level of output) to an automated production line (a fixed cost, as it doesn't change with the level of output).

3. Apply the concept to the situation: By replacing variable costs with fixed costs, the company is increasing its proportion of fixed costs

Knowee AI · Accepted Answer

Operating gearing refers to the proportion of fixed costs in a company's cost structure. When a company automates its production line, it typically replaces variable costs (like piece-rate labor) with fixed costs (like machinery and equipment).

Here are the steps to answer the question:

1. Understand the concept of operating gearing: Operating gearing is a measure of a company's fixed costs versus its variable costs. High operating gearing means the company has a high proportion of fixed costs, while low operating gearing means it has a high proportion of variable costs.

2. Analyze the situation: The company is moving from a piece-rate system (a variable cost, as it changes with the level of output) to an automated production line (a fixed cost, as it doesn't change with the level of output).

3. Apply the concept to the situation: By replacing variable costs with fixed costs, the company is increasing its proportion of fixed costs

If a company that currently pays its workforce on a piece rate system were to automate its production line, which of the following responses would it expect of operating gearing? A Decrease B Increase C Remain the same D Increase or decrease depending on the nature of the production process

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