What Does a Very High Degree of Operating Leverage Indicate

question 76

Multiple Choice

What does a very high degree of operating leverage indicate?

• A)The firm has high fixed costs.
• B)The firm has a high net income.
• C)The firm has high variable costs.
• D)The firm is operating close to its break-even point.

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Definitions:

Manufacturing Overhead Budget

A financial plan detailing the projected or expected indirect costs involved in the manufacturing process, excluding direct labor and materials.

Variable Expenses

Costs that vary directly with the level of production or business activity, such as raw materials and commissions.

Selling and Administrative Expense Budget

A detailed plan that estimates the selling and administrative expenses of a business for a specific period.

Budgeted Sales

The projected amount of sales, in units or currency, expected to be achieved in a specific period, as determined by a company's budget.