Companies with Large Amounts of Fixed Costs Will Generally Have

question 225

True/False

Companies with large amounts of fixed costs will generally have a high operating leverage.

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Definitions:

Fixed Expenses

Expenses that do not change with the level of production or sales, remaining constant regardless of business activity levels.

Degree Of Operating Leverage

A ratio that measures a company's fixed costs as a proportion of its total costs, indicating how a change in sales will affect its operating income.

Contribution Format

A type of income statement where costs are separated into variable and fixed categories, highlighting the contribution margin.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed costs in a company's cost structure.