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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

What does operating leverage measure, and how is it computed?

To determine

Concept Introduction:

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperating income 

  Change in operating income = Changes in sales ×Degree of operating leverage

To Indicate:

The meaning of Degree of operating leverage and its calculation

Explanation

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperatingx

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