Question

What does operating leverage measure?

a. the extent to which net income changes in response to a given change in sales revenue

b. the amount of each sales dollar that can be used to cover fixed costs

c. the relative amount of fixed versus variable costs a company has

d. the amount by which sales revenue can decline and still allow fixed costs to be covered

Answer 1

answer : a) the extent to which net income changes in response to a given change in sales revenue

explanation

operating leverage explains the relationship between the net operating income and the contribution margin . contribution margin is the difference between the sales and variable costs . operating leverage measures the changes in net operating income with respect the changes in sales revenue

operating leverage = contribution margin / operating  income

contribution margin = sales revenue - variable costs