BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 21, Problem 10DQ
Textbook Problem

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

Expert Solution
To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To explain: operating leverage and its computation.

Explanation of Solution

Operating leverage measures the proportion of fixed cost on the total costs and the extent to which the changes in the sales volume affects the income from operations.

It shows the relationship between the contribution margin and income from operations. Contribution margin is the difference of sales and variable cost. And, the fixed cost is the difference between the contribution margin and the income from operations. Thus,

Thus, a company which has a higher fixed cost and low variable cost, the operating leverage is high. Whereas a company which has a lower fixed cost and high variable cost, the operating leverage is low...

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 21 Solutions

Accounting
Show all chapter solutions
Ch. 21 - High-low method The manufacturing costs of...Ch. 21 - High-low method The manufacturing costs of...Ch. 21 - Contribution margin Lanning Company sells 160,000...Ch. 21 - Contribution margin Weidner Company sells 22,000...Ch. 21 - Break-even point Bigelow Inc. sells a product for...Ch. 21 - Break-even point Elrod Inc. sells a product for 75...Ch. 21 - Target profit Ramirez Inc. sells a product for 80...Ch. 21 - Target profit Scrushy Company sells a product for...Ch. 21 - Sales mix and break-even analysis Wide Open...Ch. 21 - Sales mix and break-even analysis Einhorn Company...Ch. 21 - Operating leverage SungSam Enterprises reports the...Ch. 21 - Operating leverage Westminster Co. reports the...Ch. 21 - Margin of safety Liu Inc. has sales of 48,500,000,...Ch. 21 - Margin of safety Junck Company has sales of...Ch. 21 - Classify costs Following is a list of various...Ch. 21 - Identify cost graphs The following cost graphs...Ch. 21 - Identify activity bases For a major university,...Ch. 21 - Identify activity bases From the following list of...Ch. 21 - Identify fixed and variable costs Intuit Inc...Ch. 21 - Relevant range and fixed and variable costs Vogel...Ch. 21 - High-low method Ziegler Inc. has decided to use...Ch. 21 - High-low method for a service company Boston...Ch. 21 - Contribution margin ratio a. Yountz Company...Ch. 21 - Contribution margin and contribution margin ratio...Ch. 21 - Break-even sales and sales to realize income from...Ch. 21 - Break-even sales Anheuser-Busch InBev Companies,...Ch. 21 - Break even sales Currently, the unit .selling...Ch. 21 - Break-even analysis The Junior League of...Ch. 21 - Break-even analysis Media outlets such as ESPN and...Ch. 21 - Break-even analysis for a service company Sprint...Ch. 21 - Cost-volume-profit chart For the coming year,...Ch. 21 - Profit-volume chart Using the data for Loudermilk...Ch. 21 - Break-even chart Name the following chart and...Ch. 21 - Break-even chart Name the following chart and...Ch. 21 - Sales mix and break-even sales Dragon Sports Inc....Ch. 21 - Break-even sales and sales mix for a service...Ch. 21 - Margin of safety a. If Canace Company, with a...Ch. 21 - Break-even and margin of safety relationships At a...Ch. 21 - Operating leverage Beck Inc. and Bryant Inc. have...Ch. 21 - Items on variable costing income statement In the...Ch. 21 - Variable costing income statement On July 31, the...Ch. 21 - Appendix Absorption costing income statement On...Ch. 21 - Classify costs Seymour Clothing Co. manufactures a...Ch. 21 - Break-even sales under present and proposed...Ch. 21 - Break-even sales and cost-volume-profit chart For...Ch. 21 - Break-even sales and cost-volume-profit chart Last...Ch. 21 - Sales mix and break-even sales Data related to the...Ch. 21 - Contribution margin, break-even sales,...Ch. 21 - Classify costs Cromwell Furniture Company...Ch. 21 - Break-even sales under present and proposed...Ch. 21 - Break-even sales and cost-volume-profit chart For...Ch. 21 - Break-even sales and cost-volume-profit chart Last...Ch. 21 - Sales mix and break even sales Data related to the...Ch. 21 - Contribution margin, break-even sales,...Ch. 21 - Ethics in Action Edward Seymour is a financial...Ch. 21 - Communication Sun Airlines is a commercial airline...Ch. 21 - Break-even analysis Somerset Inc. has finished a...Ch. 21 - Variable costs and activity bases in decision...Ch. 21 - Variable costs and activity bases in decision...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Explain whether the following statement is true or false: Only weak companies issue debentures.

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

Classify consumer products

MKTG 12:STUDENT ED.-TEXT

NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is 2,000 per month, 60 payments remain, ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)