Which of the Following Is Not True About Leverage

question 85

Multiple Choice

Which of the following is not true about leverage?

• A) Operating leverage influences the top half of the income statement, determining EBIT.
• B) Financial leverage deals with the bottom half of the income statement, determining EPS.
• C) Combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT.
• D) None of the options

---

Definitions:

Gross Cost

The total cost incurred before deducting any discounts, allowances, or rebates.

Operating Assets

Assets that are used for the day-to-day functioning of a business, excluding investment and non-operational assets.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the profit from an investment by the cost of the investment.

Responsibility Accounting System

A system of accounting that involves assigning revenues and costs to the individuals or departments that are directly responsible for them.