General Studies · Operating Leverage
A firm experiences a 20% increase in sales which results in a 40% increase in EBIT. Assuming no change in fixed financial costs, what does this indicate about the firm's cost structure?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The firm has no fixed costs in its operating structure
- 2The firm operates at the financial break-even level
- 3The firm exhibits significant operating leverage due to high fixed operating costs✓
- 4The firm has high financial leverage but negligible operating leverage
Correct answer
The firm exhibits significant operating leverage due to high fixed operating costs
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