Operating Leverage
Brief About Operating Leverage Operating leverage is a costaccounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.
• Operating leverage is used to calculate a company’s break-even point and help set appropriate selling prices to cover all costs and generate a profit. • Companies with high operating leverage must cover a larger amount of fixed costs each month regardless of whether they sell any units of product. • Low-operating-leverage companies may have high costs that vary directly with their sales but have lower fixed costs to cover each month.
Operating Leverage
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