A Company with a Higher Degree of Operating Leverage Is

question 105

True/False

A company with a higher degree of operating leverage is at greater risk during economic downturns because of its higher fixed costs.

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Definitions:

Factory Overhead Cost Budget

Budget that estimates the cost for each item of factory overhead needed to support budgeted production.

Total Variable Cost

The sum of all costs that vary directly with the level of production or sales volume.

Total Fixed Costs

The combined sum of all costs that do not change with the level of production or sales over a certain period.

Purchase Price Variances

The difference between the actual cost of purchased materials and the expected (or standard) cost, which can indicate efficiency or market condition changes.