Business Studies · Financial Management
A company with high fixed operating costs experiences a large percentage increase in operating profit when sales increase slightly, but faces a significant percentage decline when sales fall. This situation primarily indicates:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Low break-even point in the cost structure
- 2High operating leverage due to high proportion of fixed costs✓
- 3Absence of financial risk in the firm
- 4Low operating leverage and high financial leverage
Correct answer
High operating leverage due to high proportion of fixed costs
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