Operating leverage impacts a company by increasing fixed costs and potentially increasing risk. Here's a step-by-step explanation:

1. Operating leverage refers to the proportion of fixed costs in a company's cost structure. Fixed costs are those that do not change with the level of output, such as rent or salaries.

2. A company with high operating leverage has a large amount of fixed costs. This means that when sales are high, the company can make a lot of profit because the fixed costs are spread over a large number of units.

3. However, when sales are low, the company still has to pay the same amount in fixed costs, which can lead to losses. Therefore, high operating leverage can increase the risk for a company.

4. On the other hand, a company with low operating leverage has more variable costs, which change with the level of output. This can reduce risk because the company's costs decrease when sales are low.

So, the correct answer to your question is: Operating leverage increases fixed costs and increases risk.

Question

Operating leverage impacts a company by increasing fixed costs and potentially increasing risk. Here's a step-by-step explanation:

1. Operating leverage refers to the proportion of fixed costs in a company's cost structure. Fixed costs are those that do not change with the level of output, such as rent or salaries.

2. A company with high operating leverage has a large amount of fixed costs. This means that when sales are high, the company can make a lot of profit because the fixed costs are spread over a large number of units.

3. However, when sales are low, the company still has to pay the same amount in fixed costs, which can lead to losses. Therefore, high operating leverage can increase the risk for a company.

4. On the other hand, a company with low operating leverage has more variable costs, which change with the level of output. This can reduce risk because the company's costs decrease when sales are low.

So, the correct answer to your question is: Operating leverage increases fixed costs and increases risk.

Knowee AI · Accepted Answer

Operating leverage impacts a company by increasing fixed costs and potentially increasing risk. Here's a step-by-step explanation:

1. Operating leverage refers to the proportion of fixed costs in a company's cost structure. Fixed costs are those that do not change with the level of output, such as rent or salaries.

2. A company with high operating leverage has a large amount of fixed costs. This means that when sales are high, the company can make a lot of profit because the fixed costs are spread over a large number of units.

3. However, when sales are low, the company still has to pay the same amount in fixed costs, which can lead to losses. Therefore, high operating leverage can increase the risk for a company.

4. On the other hand, a company with low operating leverage has more variable costs, which change with the level of output. This can reduce risk because the company's costs decrease when sales are low.

So, the correct answer to your question is: Operating leverage increases fixed costs and increases risk.

How does operating leverage impact a company?a.It increases fixed costs and reduces riskb.It only affects short-term financial decisionsc.It decreases variable costs and increases riskd.It has no impact on costs or riskCLEAR MY CHOICE

Question

Solution

Similar Questions

Upgrade your grade with Knowee