Question

Operating leverage is the relative mix of

Select one:

a. revenues earned and manufacturing costs.

b. fixed and variable costs.

c. high-volume and low-volume products.

d. manufacturing costs and period costs.

e. revenues earned and variable costs.

Answer 1

answer : b) fixed and variable costs

explanation

operating leverage is the relative mix of fixed and variable costs . it explains the relationship between the contribution margin to the operating profit . the following formula used to calculate operating leverage  

operating leverage = (sales - variable costs )/ sales - variable costs - fixed costs )

or

Operating leverage = contribution margin /operating income

it includes all the variable costs and fixed cost