Operating Leverage May Be Defined as the Potential Use of Fixed

question 203

True/False

Operating leverage may be defined as the potential use of fixed operating costs to magnify the effects of changes in sales on the firm's earnings before interest and taxes (EBIT).

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Definitions:

Direct Labor-Hours

A measure of the total hours worked directly on a specific job or task, excluding indirect labor involved in general factory supervision or maintenance.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated before the actual costs are known, based on estimates.

Actual Manufacturing Overhead

The actual indirect costs incurred in the production process, including utilities, depreciation, and maintenance of production facilities.

Manufacturing Overhead

All manufacturing costs that are not directly associated with the production of a product, including indirect materials, indirect labor, and other indirect costs.