When a Firm Increases Its Degree of Operating Leverage by Substituting

question 80

True/False

When a firm increases its degree of operating leverage by substituting fixed costs for variable costs,it normally does so to decrease its breakeven point and to increase its profit.

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Definitions:

Outstanding Checks

Checks that have been written and recorded in a company’s ledger but have not yet been cleared or deducted from the bank account balance.

Credit Memo

A document issued by a seller to a buyer, reducing the amount owed by the buyer under certain circumstances, such as returned goods or an overcharge.

Debit Memo

A document issued by a seller of goods or services to a buyer, reducing the amount the buyer owes under the original invoice.

General Ledger

An exhaustive list of every financial transaction made by a company during its history, categorized by accounts.