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 the relationship between sales and earnings before interest and taxes (EBIT). It is calculated as the percentage change in EBIT resulting from a percentage change in sales. Therefore, choice A is the correct answer as it relates to the definition of operating leverage.

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