Asked by Nikki Tajdar on Jul 01, 2024
The degree of operating leverage is computed by dividing sales by the contribution margin.
Degree of Operating Leverage
A measure of how much a company's operating income changes in response to a change in sales volume, indicating the level of fixed versus variable costs.
Contribution Margin
The amount remaining from sales revenue after all variable expenses have been deducted, indicating the ability to cover fixed costs and generate profit.
- Understand the principle of operating leverage and its effect on net operating income with fluctuating sales levels.
Learning Objectives
- Understand the principle of operating leverage and its effect on net operating income with fluctuating sales levels.
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