Operating leverage measures the effect of fixed operating costs on the relationship between
A) sales and EBIT.
B) sales and EPS.
C) EBIT and EPS.
D) none of the above.

Question

Quizplus · Accepted Answer

Operating leverage measures the impact of fixed operating costs on a company's EBIT (earnings before interest and taxes). As sales increase, the effect of fixed costs on EBIT becomes more pronounced. Therefore, operating leverage measures the relationship between sales and EBIT.

Operating Leverage Measures the Effect of Fixed Operating Costs on the Relationship