The degree to which a ﬁrm or project relies on ﬁxed production costs is called its:
A) Operating leverage.
B) Financial break-even.
C) Contribution margin.
D) Cost sensitivity.
E) Operating break-even

Question

Quizplus · Accepted Answer

Operating leverage is the degree to which a firm or project relies on fixed production costs. It measures the impact of changes in sales on a firm's operating income. A high degree of operating leverage means that a small change in sales can result in a large change in operating income. This is because fixed costs remain the same regardless of changes in sales. Therefore, A) Operating leverage is the best choice.

The Degree to Which a ﬁRm or Project Relies on ﬁXed