What Is Operating Leverage,and How Does a Company Achieve Operating

question 119

Essay

What is operating leverage,and how does a company achieve operating leverage?

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Definitions:

Variable Expense

Costs that change in proportion to the activity or volume of a business, such as raw materials and sales commissions.

Fixed Expense

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Margin of Safety

This is a financial metric that measures the difference between actual sales and the break-even point, indicating how much sales can decline before a business incurs a loss.

Percentage of Sales

A financial ratio that compares a particular figure or amount to the total sales of a company.