The operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in volume.

Question

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The operating leverage factor is a measure of how sensitive a company's operating income is to changes in revenue. It is calculated by dividing the contribution margin (revenue minus variable costs) by operating income. A high operating leverage factor indicates that a small change in revenue can lead to a large change in operating income, whereas a low operating leverage factor means that changes in revenue will have less of an impact on operating income. Therefore, the statement "The operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in volume" is true.

The Operating Leverage Factor Indicates the Percentage Change in Operating