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Question
Which of the following is the correct interpretation of a degree of operating leverage of 5?
A. Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point.
B. Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point.
C. Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the firm's pretax profit.
D. Operating leverage of 5 measures the degree of debt employed by the firm's debt structure.
E. Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.
Answer
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Related questions
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What are the four steps in the effective management of variance analysis?
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30,000
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