Whenever the Percentage Change in Earnings Before Interest and Taxes

question 175

True/False

Whenever the percentage change in earnings before interest and taxes resulting from a given percentage change in sales is greater than the percentage change in sales, operating leverage exists.

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Definitions:

Volume Variance

The difference between the budgeted volume of production and the actual volume, which affects the fixed overhead costs.

Direct Labor-Hours

A measure of the total hours worked by employees who are directly involved in the production process of a company's products or services.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that do not vary with the level of production or sales, such as factory rent.

Fixed Manufacturing Overhead

Costs that do not change with the level of production, such as rent, salaries, and insurance for the manufacturing facilities.