The degree of operating leverage can be calculated as:

Expert Solution

The degree of operating leverage can be calculated as:

Operating leverage is a measure of business risk. It is defined as the firm’s ability to use fixed operating cost to magnify the effect of changes in sales on its earnings before Interest and taxes. The % change in EBIT due to a % change in sales is known as operating leverage. Operating leverage is associated with capital budgeting decisions. The degree of operating leverage at a given level of sales is calculated by dividing the contribution margin with the net operating income.

Degree of Operating Leverage = Contribution Margin

Net Operating Income

ekkarill92 answered 1 year ago

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