Question

The extent to which an organization uses fixed cost in its cost structure is called

Answer 1

an organization's cost structureis the relative proportions of its fixed and variable costs. The extent to which an organization uses fixed costs in its cost structure is called operating leverage. Firms with high operating leverage tend to have higher break-even points, other things being equal.

Answer 2

The extent to which an organization uses fixed costs in its cost structure is called operating leverage.

• The cost structure of a firm relates to the many types of expenses that it incurs and is often made up of fixed and variable costs.
• Fixed costs are costs that stay constant regardless of the quantity of output produced by a corporation, whereas variable costs vary with production volume.
• Whether a firm is a retailer or a service provider, it must suffer some sort of expense.
• Retailers and service providers have different cost structures, therefore the expenditure accounts that show on a financial statement are determined by the cost objects, such as a product, service, project, client, or business activity.
• Thus, operating leverage refers to the extent to which a company leverages fixed costs in its cost structure.