Answered: Whenever the percentage change in EBIT…

Whenever the percentage change in EBIT due to percentage change in sales is lower than the percentage change in sales, operating leverage exists TRUE FALSE

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 6MCQ: The use of fixed costs to extract higher percentage changes in profits as sales activity changes...

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Question

Whenever the percentage change
in EBIT due to percentage change
in sales is lower than the
percentage change in sales,
operating leverage exists
TRUE
FALSE

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Similar questions

Financial leverage indicates - O a. The tendency of sales to vary disproportionately with fixed cost. O b. The tendency of profit before tax (PBT) to vary disproportionately with operating profit (EBIT). OC. The tendency of profit before tax (PBT) to vary disproportionately with sales. Od. The tendency of profit after tax (PAT) to vary disproportionately with fixed cost.
Which of the following statements about operating leverage is NOT true? Group of answer choices Operating leverage predicts the effect of fixed costs on operating income when sales volume changes. A higher proportion of fixed cost in a cost structure results in higher operating leverage. The higher the operating leverage, the higher the risk of loss when sales volume decreases. A higher proportion of fixed cost in a cost structure results in lower operating leverage.
how does the sales mix affect the calculatin of the break even point, what does operating leverage measure and how is it computed
The amount by which a company's sales can decline before losses are incurred is called the:degree of operating leverage.margin of safety.profit loss.contribution margin ratio.
Is it true or false that for a given profit margin and turnover ratio, a greater leverage ratio will result in a higher ROE?
Operating leverage predicts the effects of a given fixed cost on operating income when: Group of answer choices No sales discounts are allowed Sales volume changes Production volume changes Variable costs change
Operating leverage measures the: 1. Change in profit when sales changes 2. change in contrribution when sales changes 3. change in BEP when fixed cost changes 4. change in BEP when sales changes
The margin of safety can be defined as the amount by which sales can decrease beforelosses are incurred by the company.TRUEFALSE
If company A has a higher degree of operating leverage than company B, then: company A is more profitable. company A has higher variable expenses. company A is less risky. company A's profits are more sensitive to percentage changes in sales.
Which of the following is not an assumption underlying cost-volume-profit analysis? a.The break-even point will be passed during the period. b.Total sales and total costs can be represented by straight lines. c.Costs can be accurately divided into fixed and variable components. d.The sales mix is constant.
Which of the following is not an assumption underlying cost-volume-profit analysis?a. The sales mix is constant.b. The break-even point will be passed during the period.c. Total sales and total costs can be represented by straight lines.d. Costs can be accurately divided into fixed and variable components.
Break-Even Point AnalysisThe break-even point is usually expressed as the amount of revenue that must berealized for the firm (or product or activity or group of products or activities) to haveneither profit nor loss (that is, operating income equal to zero). The break-even pointis useful to managers because it expresses a minimum revenue target, and managersfrequently find it easier to think in terms of revenues rather than variable and fixedexpenses. In addition, the amount of sales (or revenues) generated by the firm is easilydetermined daily from the accounting system.The contribution margin model is used to determine the break-even point by setting operating income equal to zero and solving the model for the revenue or physicalsales volume that will cause that result. The calculation of break-even point in termsof units and total revenues is illustrated here:Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .…