DEGREE OF OPERATING LEVERAGE FROM CVP DATA
LEVERAGE MEANS RELATIVE CHANGE IN PROFIT IN RESPONSE TO CHANGE IN SALES. HIGH LEVERAGE MEANS A SMALL CHANGE IN SALES BRINGS FORTH A HUGE CHANGE IN PROFIT, WHETHER INCREASE OR DECREASE. LEVERAGE CAN BE OF THREE TYPES; FINANCIAL LEVERAGE, OPERATING LEVERAGE, AND COMBINED LEVERAGE. OPERATING LEVERAGE ARISES DUE TO PRESENCE OF FIXED COSTS IN THE COST STRUCTURE OF A FIRM. IF THERE IS NO FIXED COSTS THEN DEGREE OF OPERATING LEVERAGE WOULD BE ZERO. MORE THE FIXED COST MORE IS THE OPERATING LEVERAGE. DOL = % CHANGE IN PROFIT/% CHANGE IN SALES.