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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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