A firm has an operating leverage factor of 4. This means that

A) if sales revenue increased by 2 per cent, profit would increase by 4 per cent.
B) if sales revenue increased by 2 per cent, profit would increase by 8 per cent.
C) if sales revenue increased by 2 per cent, profit would increase by 2 per cent.
D) profit would increase by 4 times the dollar increase in sales revenue.

Operating Leverage Factor

A measure that assesses the degree to which a company can increase operating income by increasing revenue, highlighting the fixed versus variable costs structure.

Sales Revenue

The total amount of money generated from the sale of goods or services before any expenses are subtracted.

Profit Increase

The growth in profit from one period to another, often measured as a percentage increase, indicating the company's improved financial performance.