Answer:Trading off higher fixed costs for lower per-unit variable costs.
Explanation: Operating leverage emphasizes the impact of fixed assets in a business,it involves the use of fixed costs to magnify returns at high levels of operation. Operating leverage changes when a firm alters the mix of fixed capital resources and variable labor that it uses for its operations,the Degree of operating leverage should be computed only over a profitable range of operations, firms with high degree of Operating leverage are capable of trading off higher fixed costs for lower per-unit variable costs.
Answer:
The correct answer is letter "D": trading off higher fixed costs for lower per-unit variable costs.
Explanation:
Operating Leverage is the relation between the fixed and variable costs of a company. The Degree of Operating Leverage (DOL) tests how well a business uses its fixed costs to generate profits. It is calculated by:
[tex]DOL = \frac{(Sales - Variable Costs)}{Profits}[/tex]
The DOL helps in determining the degree of revenue and losses a company could have. Typically, firms with high DOLs substitute their more expensive fixed costs for variable costs per unit that are lower.
