Q25RQ
Question
What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?
Step-by-Step Solution
Verified Answer
The change will be more operating income than sales.
1Meaning of operating leverage
The change in operating income when sales volume changes due to a change in fixed costs is known as operating leverage.
2What does it mean if a company has a degree of operating leverage of 3?
The degree of operating leverage of 3 means that the percentage variation in operating income will be three times the percentage in sales.
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