Which is characteristic of operating leverage?
A)concerned with the relative mix of contribution margin and margin of safety
B)the use of fixed costs to extract higher percentage changes in profits as sales activity changes
C)likely to be lower in an automated manufacturing system than in a manual system
D)provides the same information as margin of safety

Question

Quizplus · Accepted Answer

Operating leverage is the use of fixed costs to amplify changes in profits as sales activity changes. It is concerned with the relative mix of contribution margin and fixed costs, and it is not directly related to the level of automation in a manufacturing system. Margin of safety, on the other hand, is a measure of how much sales can fall before a company incurs losses.

Which Is Characteristic of Operating Leverage