Why is an overestimate of sales more serious for projects with high operating leverage?

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Why is an overestimate of sales more serious for projects with high operating leverage?



Answer: OPERATING LEVERAGE, the degree to which costs are fixed. A project's breakeven point will be affected by the extent to which costs can be reduced as sales decline. If the project has mostly FIXED COSTS, it is said to have HIGH OPERATING LEVERAGE. High operating leverage implies that profits are more sensitive to changes in sales.

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