Operating Leverage Is

question 31

Multiple Choice

Operating leverage is

• A) the ratio of net income to sales.
• B) the ability of a firm to pay off its debts.
• C) the ratio of fixed costs to variable costs.
• D) also referred to as working capital.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with production volume, such as rent, salaries of permanent staff, and depreciation of factory equipment.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to individual units of production based on a certain activity base.

Variable Manufacturing Overhead

Costs that vary with production volume, such as indirect materials and utilities, related specifically to the manufacturing process.

Labor-Hours

The total number of working hours clocked by employees within a specific period, reflecting the labor input.