3RD EXAM(OPERATING LEVERAGE

Question 1

REPRESENTS THE FIXED COSTS items to magnify the firm’s results
which could be related to the determination of the amount of fixed cost related to plant and equipment or determination of how to finance the business.

Answer 1

Leverage

Question 2

This is a measure of HOW SENSITIVE NET OPERATING INCOME is to a given percentage change in peso sales.

Answer 2

Operating leverage

Question 3

This reflects the AMOUNT OF DEBT USED in the capital structure of the firm.

Answer 3

Financial leverage

Question 4

An individual who wishes to establish a business is
faced with two primary decisions to make. FIRST is to ______________________________
cost related to plant and equipment shall be used in the production process

Answer 4

determine the amount of fixed

Question 5

The other decision to make is to determine how the business shall be FINANCED

Answer 5

Financial leverage

Question 6

If the _________________ is high, a small percentage increase in sales
can produce a much larger percentage increase in net operating income

Answer 6

operating leverage

Question 7

If ______________________ is affecting the left hand side of the statement of financial position, financial leverage is affecting the right hand side.

Answer 7

operating leverage

Question 8

If operating leverage is affecting the left hand side of the statement of financial position, ___________________is affecting the right hand side.

Answer 8

financial leverage