Asked by Matthew Medina on May 07, 2024
Verified
The degree of operating leverage in a company is smallest at the break-even point and increases as salesvolumes rise.
Operating Leverage
A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed costs in a company's cost structure.
Break-Even Point
The level of production or sales at which total revenues equal total costs, resulting in no profit or loss.
- Understand the graphical depiction of cost-volume-profit analysis.
Verified Answer
SR
Sophia RomeroMay 11, 2024
Final Answer :
False
Explanation :
The degree of operating leverage is highest at the break-even point because at this point, all costs are fixed and any increase in sales volume will lead to a proportionally larger increase in operating income. As sales volumes rise beyond the break-even point, the degree of operating leverage decreases because the proportion of variable costs increases.
Learning Objectives
- Understand the graphical depiction of cost-volume-profit analysis.
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