Chapter 5, Problem 6BE

To determine

Operating leverage: It is a ratio that measures the proportion of fixed cost on the total costs and the extent to which the changes in the sales volume affects the income from operations. It shows the relationship between the contribution margin and income from operations. The formula to calculate the operating leverage is as follows:

$\text{ Operating}\text{leverage}=\frac{\text{Contribution}\text{Margin}}{\text{Income}\text{from}\text{operations}}$

T Company’s operating leverage