Operating Leverage Is an Important Concept for Many Companies

question 87

Essay

Operating leverage is an important concept for many companies.
Required:
A. Define operating leverage.
B. Assume that a firm pays no income taxes and is planning to increase its selling price. If sales volume in units does not change, what will be the effect on the operating leverage factor? Explain.
C. Assume that another firm that pays no income taxes is planning to increase total fixed manufacturing costs and decrease variable manufacturing costs per unit. At the present volume of production, the total manufacturing costs will be unchanged. What will this change do to the operating leverage factor? Explain.

---

Definitions:

Effective Leadership

The ability to successfully guide and motivate a team or organization towards achieving its goals.

Findings

Conclusions or results that have been discovered through research or analysis.

Exposure

The state of being subjected to some affecting influence or environment, often leading to changes in behavior or perception.

Visible Outcomes

Tangible or observable results that can be seen or measured, stemming from specific actions or processes.