What Happens to a Firm with High Operating Leverage When

question 87

Multiple Choice

What happens to a firm with high operating leverage when the overall level of sales is very high?

• A)the firm has higher levels of fixed costs.
• B)the firm will enjoy high profits.
• C)the firm will not break even in accounting terms.
• D)the firm will have a reduced level of fixed costs.

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Definitions:

Direct Labor Cost

The total cost of all labor directly involved in the production of goods or services, excluding indirect labor costs.

Labor Cost

The total expenses associated with employing labor, including wages, benefits, and taxes.

Cash Budget

A financial plan that estimates cash inflows and outflows over a certain period of time, often used for managing liquidity.

Cash Receipts

are documents or records of the actual cash received by a business from transactions, including sales, loans, or asset disposals.