Which formula is used to calculate the degree of operating leverage?
Correct answer: B. Contribution divided by operating profit
- A. Fixed cost divided by sales
- B. Contribution divided by operating profit
- C. Operating profit divided by variable cost
- D. Sales divided by total assets
Explanation
The degree of operating leverage is calculated as contribution divided by operating profit. A higher result means that operating profit is more sensitive to changes in sales volume.
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Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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