To Find a Firm's Operating Leverage Factor at a Given

question 105

Multiple Choice

To find a firm's operating leverage factor at a given level of sales,you:

• A)divide the contribution margin by fixed expenses.
• B)divide variable expenses by fixed expenses.
• C)divide the contribution margin by operating income.
• D)relatively operating income by contribution margin.

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Definitions:

Mixed Cost

A cost containing both variable and fixed cost elements, changing in total with activity level but not proportionately.

Direct Labor Hours

The total time workers spend producing a product or providing a service, directly tied to the production process.

Contribution Margin Ratio

A financial metric that shows what percentage of sales revenue is available to cover fixed costs and generate profit after variable costs have been paid.

Variable Costs

Costs that change in proportion to the level of activity or volume of goods produced by a business.