Question

The operating leverage ________. ANSWER Unselected is the excess of actual or expected sales over breakeven sales Unselected refers to a company’s amount of relative fixed and variable costs Unselected refers to how responsive a company’s operating income is to changes in volume Unselected refers to the point at which a manager would be indifferent between two options since they would both result in the same total cost

Answer 1

refers to how responsive a company’s operating income is to changes in volume

Step-by-step explanation:

Operating leverage is an efficiency ratio that measures the % of fixed and variable costs over total costs and how they affect profit. It helps to compare how efficiently a company is using its fixed costs to generate profits.

there are two formulas used to calculate operating leverage:

1. OL = (quantity x contribution margin) / [(quantity x contribution margin) – fixed operating costs]
2. OL = (sales - total variable costs) / profit

Operating leverage basically measures how an increase in sales volume will affect the company's profits. The higher the OL, the more a change in total sales volume will affect profits, e.g. OL = 115% (or 1.15) means that a 10% increase in sales volume will increase profits by 15%.

Answer 2

Operating Leverage refers to how responsive a company's operating income is to changes in volume.

Step-by-step explanation:

Risks can be differentiated into two categories: Business Risk and Financial Risk. Business Risk is the Risk in Operations and one of the factors that affect it is Operating Leverage which can be defined as the "%age Change in EBIT (Operating Profit) due to 1% Change in Sales". The leveraging factor is the Fixed Cost. A company with a high degree of operating leverage is said to have more Business Risk.

To see how much Operating Profit will change due to 1% change in Sales Volume, we calculate the Degree of Operating Leverage. Lets say that you calculate the Degree of Operating leverage and gets 2 as your Answer. It means that a 1% change in Sales will change the Operating Profit by 2%.

Thanks!