Explain the concept of operating leverage
Dear Student,
Operating leverage refers to the percentage of fixed costs that a company has.It is the ratio of fixed costs to variable costs. If a business firm has a lot of fixed costs as compared to variable costs, then the firm is said to have high operating leverage and vice versa.
Operating leverage refers to the percentage of fixed costs that a company has.It is the ratio of fixed costs to variable costs. If a business firm has a lot of fixed costs as compared to variable costs, then the firm is said to have high operating leverage and vice versa.
Operating Leverage = Contribution Margin / Net Operating Income
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