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:

Machine Hours

A measure of production time, quantified in hours, that machinery is operational and actively working on manufacturing products.

Standard Costing System

A cost accounting method that assigns predetermined costs to production activities, facilitating variance analysis to control costs.

Standard Overhead Rate

The predetermined rate charged for overhead expenses in a standard costing system, based on expected costs and activity levels.

Flexible Overhead Rate

An overhead allocation rate that adjusts for variations in actual activity levels, as opposed to being fixed or static.