Multiple Choice QuestionA measure to assess the effect of changes in the level of sales on income is the :Multiple choice question.safety margincontribution marginbreak-evendegree of operating leverage
Question
Multiple Choice QuestionA measure to assess the effect of changes in the level of sales on income is the :Multiple choice question.safety margincontribution marginbreak-evendegree of operating leverage
Solution
The correct answer is "degree of operating leverage".
The degree of operating leverage is a measure used in managerial accounting that allows a company to see the effects that changes in sales volume have on profits. It is calculated by dividing the percentage change in operating income by the percentage change in units sold.
The higher the degree of operating leverage, the more a company's income will be affected by fluctuations in sales volume. This is because companies with high operating leverage have a higher proportion of fixed costs, so when sales increase, a larger portion of each additional dollar of sales contributes to income.
On the other hand, the safety margin, contribution margin, and break-even point are all important concepts in managerial accounting, but they do not directly measure the effect of changes in sales volume on income.
The safety margin is the amount by which sales can decrease before the company starts to incur losses.
The contribution margin is the revenue remaining after subtracting the variable costs that go into producing a product.
The break-even point is the point at which total revenue equals total costs, meaning the company is neither making a profit nor incurring a loss.
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