Would a firm with low degree of operating leverage need to sell more units of products to reach break-even point or less? Why?

Business

1 answer:

Leokris [45]3 years ago

6 0

Answer:

The company would need to sell less units of product.

Explanation:

Operating leverage measures the relationship between variable and fixed costs. Those companies with low operating leverage have a larger proportion of variable costs in its total costs structure and need to sell smaller amount of units in order to cover its fixed costs. Since breaking point is the point were profit is equal to zero and where sales income is equal to the total costs, consisting of both fixed and variable costs, it needs to sell less products, as its variable costs increase with the number of units sold.

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