Operating leverage refers to:

A Debt levels

B The proportion of fixed costs in a company cost structure that amplifies changes in sales into larger changes in operating income

C Cash reserves

D Number of employees

✓ Correct Answer: Option B

High operating leverage: large fixed costs relative to variable costs. Small revenue change → disproportionately large change in operating income. DOL = % change in EBIT / % change in Sales.

💡 Why is B) the correct answer?

The correct answer to the question "Operating leverage refers to:" is Option B: The proportion of fixed costs in a company cost structure that amplifies changes in sales into larger changes in operating income.

The other options — A) Debt levels, C) Cash reserves, D) Number of employees — are incorrect for this Pre-MBA Exam Prep question. As explained above: High operating leverage: large fixed costs relative to variable costs. Small revenue change → disproportionately large change in operating income. DOL = % change in EBIT / % change in Sales.

📚 About This Pre-MBA Exam Prep Practice Question

This 3-level Pre-MBA Exam Prep question from the Accounting topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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Operating leverage refers to:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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