As Compared to a Company with a Low Operating Leverage

question 55

Multiple Choice

As compared to a company with a low operating leverage, a company with a high operating leverage will:

• A) Have smaller losses below the break-even point
• B) Have smaller profits above the break-even point
• C) Have larger losses below the break-even point
• D) Never be at the break-even point

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Definitions:

Selling Expenses

Costs incurred directly and indirectly in making sales, including commissions, advertising, and salaries of sales staff.

Administrative Expense

Overhead or general expenses related to the day-to-day running of a business but not directly tied to production.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in the asset's value.

Amortization Expense

The gradual write-off of the cost of an intangible asset over its useful life.