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      Question

      What does operating leverage measure in cost accounting

      and finance?
      A The ability of a firm to increase revenue by reducing variable costs Correct Answer Incorrect Answer
      B The proportion of revenue allocated to operating expenses Correct Answer Incorrect Answer
      C The ratio of fixed costs to variable costs Correct Answer Incorrect Answer
      D The efficiency of a firm's production process Correct Answer Incorrect Answer
      E The extent to which a firm can increase operating income by increasing revenue Correct Answer Incorrect Answer

      Solution

      Operating leverage is a cost-accounting formula (a financial ratio) that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.

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