Higher Operating Leverage

question 4

Multiple Choice

Higher operating leverage:

• A) Should be lowered
• B) Increases risk of loss if operations are near the breakeven point
• C) Reduces risk of loss if operations are near the breakeven point
• D) Does not affect the risk of loss regardless of the level of operations

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Definitions:

Direct Labor Hours

The total hours of labor directly involved in the manufacturing of a product, directly tied to the production process.

Direct Materials Price Variance

The cost associated with the difference between the actual price and the standard price of direct materials multiplied by the actual quantity of direct materials used in producing a commodity.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the production cost.

Direct Materials

Raw materials that can be directly traced back to the production of specific goods or services.