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Operating Leverage: Understanding the Cost-Accounting Formula

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Operating Leverage: Understanding the Cost-Accounting Formula

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Questions and Answers

What is the primary purpose of operating leverage?

To determine the sensitivity of operating income to changes in revenue (correct)

To measure the firm's profitability

To assess the efficiency of a firm's operations

To calculate a firm's tax liability

What is the main focus of operating leverage in a firm's financial analysis?

Revenue and operating income (correct)

Assets and liabilities

Market trends and competitors

Fixed costs and variable costs

What is the relationship between operating leverage and revenue?

Operating leverage increases as revenue increases (correct)

Operating leverage decreases as revenue increases

Operating leverage is only applicable when revenue is decreasing

Operating leverage is independent of revenue

What is the key benefit of understanding operating leverage for a firm?

<p>Identifying opportunities to increase operating income</p> Signup and view all the answers

What is the core concept of operating leverage in cost-accounting?

<p>The degree of operating income sensitivity to revenue changes</p> Signup and view all the answers

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