What is operating leverage? The degree of operating leverage is 2.75. What does this mean?
What will be an ideal response?
Operating leverage predicts the effects that fixed costs have on operating income when sales volume changes. If a company has a degree of operating leverage of 2.75, then a percentage change in sales times the degree of operating leverage equals the percentage change in operating income. For example, if sales increase by 10%, then operating income will increase by 27.5% (2.75 × 10%).
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