Explain what is meant by the term operating leverage

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Reference no: EM13940506

1. Define the term sales mix, and give an example to support your definition.

2. Explain how CVP analysis developed for single products can be used in a multiple- product setting.

3. Since break-even analysis focuses on making zero profit, it is of no value in determining the units a firm must sell to earn a targeted profit.

Do you agree or disagree with this statement? Why?

4. How does targeted profit enter into the break-even units equation?

5. Explain how a change in sales mix can change a company's break-even point.

6. Define the term margin of safety. Explain how it can be used as a crude measure of operating risk.

7. Explain what is meant by the term operating leverage. What impact does increased leverage have on risk?

8. How can sensitivity analysis be used in conjunction with CVP analysis?

9. Why is a declining margin of safety over a period of time an issue of concern to managers?

Reference no: EM13940506

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