Operating Leverage Is the Sensitivity of a Firm's ________ to Changes

question 131

Multiple Choice

Operating leverage is the sensitivity of a firm's ________ to changes in ________.

• A) sales volume; the cost structure
• B) margin of safety; ratio of fixed costs to variable costs
• C) sales volume; the cost driver levels
• D) net income; sales volume

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Definitions:

Bond Discount

The difference between the face value of a bond and its selling price, when the bond is sold for less than its face value.

Straight-Line Method

A depreciation method where an asset's cost is uniformly allocated over its useful life, resulting in equal depreciation expenses each accounting period.

Double-Declining-Balance

An accelerated method of depreciation which doubles the rate at which an asset’s book value depreciates compared to traditional straight-line depreciation, resulting in larger deductions in the early years of an asset’s life.

Market Rate

The prevailing interest rate available in the open market, often influencing or benchmarking loan and savings rates.