As Compared to a Company with a Low Operating Leverage

question 55

Multiple Choice

As compared to a company with a low operating leverage, a company with a high operating leverage will:

• A) Have smaller losses below the break-even point
• B) Have smaller profits above the break-even point
• C) Have larger losses below the break-even point
• D) Never be at the break-even point

Interpret the significance of favorable and unfavorable variances in cost control.

Apply standard hours and standard machine-hours as bases for overhead application.

Recognize the role of direct labor-hours in variable overhead application.

Understand the process of budgeting machine-hours and its effect on overhead costs.

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Definitions:

Operating Cash Flows

The amount of cash generated by a company's normal business operations over a specific period.

Credit Analysis

The evaluation of an individual's or organization's ability to repay debt.

Probability of Default

An estimate of the likelihood that a borrower will be unable to meet debt obligations as specified in the terms of the loan, typically expressed as a percentage.

Indebtedness

The state of owing money or being obliged to repay a monetary loan.