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What is operating leverage?  The degree of operating leverage is 2.75. What does this mean?
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Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
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Operating leverage predicts the effects that fixed costs have on changes in operating income when sales volume changes.  If a company has a degree of operating leverage of 2.75, then a percentage change in sales will have 2.75 times the percentage change in profits.  For example, if sales increase by 10%, then profits will increase by 27.5% (2.75 × 10%).
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6 years ago
Makes perfect sense, thx
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