The extent to which an organization uses fixed costs in its cost structure is measured by:
A) financial leverage.
B) operating leverage.
C) fixed cost leverage.
D) contribution leverage.
E) efficiency leverage.

Question

Quizplus · Accepted Answer

Operating leverage measures the extent to which an organization uses fixed costs in its cost structure. High operating leverage means that a company has a higher proportion of fixed costs in relation to its variable costs, which can amplify profits as sales increase but also increase losses if sales decline.

The Extent to Which an Organization Uses Fixed Costs in Its