Explain the Term Leverage

question 232

Essay

Explain the term leverage. When is it more favorable for firms to use this strategy?

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Definitions:

Variable Selling

Variable selling refers to the costs associated with selling products that vary with the level of sales activities, such as commissions and shipping expenses.

Administrative Expense

Costs related to the general operation of a business, including executive salaries, legal and financial fees, and other overhead costs.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales activities.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating how much revenue contributes to fixed costs and profits.