Operating leverage works when sales increase. This is because operating leverage is a measure of how much a company’s profits will increase or decrease in response to a change in sales. A company with high operating leverage will have a large increase in profits for a small increase in sales, and a large decrease in profits for a small decrease in sales. A company with low operating leverage will have a small increase in profits for a small increase in sales, and a small decrease in profits for a small decrease in sales.
Option A is the correct answer. Option B is incorrect because operating leverage works when sales increase, not decrease. Option C is incorrect because operating leverage is a measure of how much a company’s profits will increase or decrease in response to a change in sales, not both an increase and a decrease in sales. Option D is incorrect because operating leverage does work.