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Why do managers put emphasis on controlling fixed costs?

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Why do managers put such a great amount of emphasis on controlling fixed costs in their organizations?

What is meant by the statement, my company has good operating leverage? How does good operating leverage magnify earnings results with modest revenue increases

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Solution Summary

Your discussion is 201 words (about two paragraphs) and includes an illustration of operating leverage in Excel. Click in cells to see computations. It shows how profits change when sales change and how the degree of operating leverage shows you how much profits will change for each percent change in sales.

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Why do managers put such a great amount of emphasis on controlling fixed costs in their organizations?

Fixed costs often represent a multi-period commitment. They are "locked in" for a length of time and so they remove flexibility. Think about signing a lease or buying equipment. The rent and the depreciation on the equipment will continue for the length of the lease and the life of the equipment, regardless of the level of ...

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  • MSc, University of Virginia
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