Operating Leverage

Operating Leverage [LO 31 John Dial is the president It raciiiL The company has 2000 employees and manufactures and sells a variety of refrigeration units for commercial use. Recently, the company experienced large losses due to a downturn in the aeon. omy and a subsequent decline in sales. John thinks the losses were particularly large because his company has too many fixed costs.
a. Expand on lob n’.s thought, How art the large losses related to fixed costs? b. Identi a way that John can tum potential fixed costs into variable costs.

Sample Solution