Question

The potential effect of the risk that sales will fall short of planned levels, as influenced by the relative proportion of fixed to variable manufacturing costs, can be measured by operating leverage, which is the ratio of the profit to contribution margin.

	True
	False A firm that competes on cost leadership needs CVP analysis primarily at the manufacturing stage, while a differentiating firm needs CVP analysis in the early phases of the cost life cycle. True False Sensitivity analysis refers to a variety of methods that examine how an amount changes if factors involved in predicting that amount change. True False

Answer 1

1	Degree of Operating Leverage =(Sales - Variable costs) / Profit
	So the formulae clearly states that operating leverage is the ratio of Contribution margin to profit and
	not Profit to contribution margin.
	Hence the Statement is False
2	The statement given is True.A firm with cost leadership needs CVP primarily on Manufacturing stage as most of its revenues
	and costs are incurred at this stage.
3	Under sensitivity analysis various factors are taken into account then they are a measure of percentage change is made and then
	the sensitivity(change in amount due to percentage change in account) is measured.
	So the Statement is True