?

Managerial Accounting

Free Version

Upgrade subject to access all content

Moderate

Compare Two Firms Using Their Operating Leverage Rato

MGRACT-MI7JSV

Your client has an operating leverage ratio of 2.0 in the most recent period. Their closest competitor has an operating leverage ratio of 1.4 for the recent period.

What of these statements is more likely true about these two firms given these ratios?

A

The competitor has lower sales prices.

B

The competitor's profits are more likely to drop with a drop in sales volume.

C

The competitor has lower fixed costs in relation to variable costs than your client.

D

The competitor has a lower contribution margin percent than your client.