What does operating leverage mean on the CPA exam?
Operating leverage. How much a company's profit moves for a given move in sales, driven by how much of its cost is fixed. High fixed cost magnifies both directions.
Which CPA exam sections use operating leverage?
Operating leverage appears in the BAR section of the CPA exam.
Related terms
- contribution margin: Sales less variable cost.
- cost of goods sold: What the items actually sold cost to make or buy.
- weighted average cost of capital: The blended after-tax cost of a company's debt and equity, weighted by how much of each it uses.
- operating income: Profit from the core business, before interest and tax.
- gross profit: Sales less the cost of goods sold, before any operating expense.