Asked by Jonah Marukot on Jun 20, 2024
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Which of the following is the most precise definition of the operating leverage factor? The operating leverage factor measures
A) the proportion of fixed costs in a firm's cost structure.
B) the proportion of variable costs in a firm's cost structure.
C) the effect that an increase (decrease) in sales volume will have on profit.
D) the proportion of fixed costs in a firm's cost structure AND the proportion of variable costs in a firm's cost structure.
Operating Leverage Factor
A ratio that measures the proportion of fixed costs to total costs, indicating how a change in sales volume impacts profitability.
Sales Volume
The quantity of products or services sold by a business during a specific period, often used as an indicator of business performance.
Cost Structure
The composition of a company's costs, including the proportion of fixed versus variable costs incurred in its operations.
- Understand the concept and calculation of operating leverage.
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Learning Objectives
- Understand the concept and calculation of operating leverage.
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