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    A labor-intensive company has low fixed costs and a lower break-even point, but also has little magnification of profits from operating leverage. A capital-intensive firm has higher fixed costs and a higher break-even point, but enjoys greater positive effects on profits from operating leverage as volume increases.

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    A labor-intensive company has low fixed costs and a lower break-even point, but also has little magnification of profits from operating leverage. A capital-intensive firm has higher fixed costs and a higher break-even point, but enjoys greater positive effects on profits from operating leverage as volume increases.

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    14 views1 page

    Question

    Uploaded by

    bawarrai
    A labor-intensive company has low fixed costs and a lower break-even point, but also has little magnification of profits from operating leverage. A capital-intensive firm has higher fixed costs and a higher break-even point, but enjoys greater positive effects on profits from operating leverage as volume increases.

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    [QUESTION]

    Explain how the break-even point and operating leverage are affected by the choice of
    manufacturing facilities (labor intensive versus capital intensive).

    [ANSWER]

    A labor-intensive company will have low fixed costs and a correspondingly low break-even
    point. However, the impact of operating leverage on the firm is small and there will be little
    magnification of profits as volume increases. A capital-intensive firm, on the other hand, will
    have a higher break-even point and enjoy the positive influences of operating leverage as volume
    increases

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