Question

Operating leverage predicts the effects that fixed costs have on operating income when​ ________. A. there are no sales returns B. sales volume changes C. production is discontinued D. variable costs change

Answer 1

B. sales volume changes

Step-by-step explanation:

Operating leverage measures the effect of fixed cost on operating income when volume of sales change.

Operating leverage is created when a firm has fixed operational expenses. E.g. depreciation.

The degree of operating leverage = percentage change in operating income/ percentage change in unit sold

Operational income = Revenue - operating expenses - Cost of goods sold.