What is Operating Leverage
Brief About Operating Leverage Operating leverage is a cost-accounting 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.
What is Operating Lever age
Thank you