Operating Leverage and its Impact on Income

Operating leverage is a financial concept that reflects the proportion of fixed versus variable costs in a company's cost structure. A company with high operating leverage will experience a larger percentage change in operating income with a change in sales, compared to a company with low operating leverage.

Consider Company A, which has high fixed costs, and Company B, which has lower fixed costs and higher variable costs. If both companies increase their sales by 10%, which company is likely to see a larger increase in its operating income?