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Operating leverage for Otabai's project

10-14. Suppose that the expected variable costs of Otobai's project are ¥ 33 billion a year and that fixed costs are zero. How does this change the degree of operating leverage? Now recompute the operating leverage assuming that the entire ¥ 33 billion of costs are fixed.

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The degree of operating leverage is contribution margin / operating income. (Some books give an alternative but mathematically equivalent formula)

So, if all the costs are variable, the contribution margin is the same as ...

Solution Summary

I have given you a answer by giving you a contribution margin income statement to illustrate how this work.