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Question

Which of the following is a key determinant of operating leverage?

A Cost of debt Correct Answer Incorrect Answer
B The trade-off between variable cost and fixed cost Correct Answer Incorrect Answer
C Nature of business Correct Answer Incorrect Answer
D All of the above Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

          Operating leverage = Q(P-V)/Q (P-V) – F           Q = quantity of units sold           V = Variable cost           F = Fixe cost           P = Price per unit   Operating leverage is determined by the trade-off between variable and fixed costs.

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