CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

Operating leverage ______

A. decreases operating income variability relative to sales variability.
B. increases operating income variability relative to sales variability.
C. increases net income variability relative to operating income variability.
Correct Answer: B

Operating leverage, which results from the use of fixed factors of production, increases the variability of operating income relative to sales variability.

User Contributed Comments 5

User Comment
in4maha I dont get this question can any one explain it plz
hoyleng in4maha : it asks about the formula for DOL
johntan1979 DOL = % change in EBIT / % change in sales
stanevd a is also possible
Inaganti6 A is not possible I think the relation between EBIT and SALES gets very linear or there is a straight forward ratio/multiple type effect if there isn't any operating leverage
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