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Questions and Answers
What is the primary purpose of operating leverage?
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?
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?
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?
What is the key benefit of understanding operating leverage for a firm?
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What is the core concept of operating leverage in cost-accounting?
What is the core concept of operating leverage in cost-accounting?
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Study Notes
Operating Leverage
- Operating leverage is a cost-accounting formula.
- It measures the degree to which a firm can increase operating income by increasing revenue.
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