False, Degree of operating leverage is largest at break even
Does operating leverage increase as profit increases?
The more profit a company can squeeze out of the same amount of fixed assets, the higher its operating leverage.
What is meant by operating leverage?
Operating leverage occurs when a company has fixed costs that must be met regardless of sales volume. When the firm has fixed costs, the percentage change in profits due to changes in sales volume is greater than the percentage change in sales.
How does operating leverage affect break-even point?
To make a profit, the price must be higher than the break-even point. A company with a high operating leverage, or a higher ratio of fixed costs to variable costs, always has a higher break-even point than a company with a low operating leverage.
Is high or low operating leverage better?
Generally speaking, high operating leverage is better than low operating leverage, as it allows businesses to earn large profits on each incremental sale. Having said that, companies with a low degree of operating leverage may find it easier to earn a profit when dealing with a lower level of sales.
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