Operating Leverage - HP 12c Platinum Reference Manual

Operating Leverage

The degree of operating leverage (OL) at a point is defined as the ratio of the percentage
change in net operating income to the percentage change in units sold. The greatest degree
of operating leverage is found near the break-even point where a small change in sales
may produce a very large increase in profits. Likewise, firms with a small degree of
operating leverage are operating farther form the break-even point, and they are relatively
insensitive to changes in sales volume.
The necessary inputs to calculate the degree of operating leverage and fixed costs (F),
sales price per unit (P), variable cost per unit (V) and number of units (U).
The operating leverage may be readily calculated as follows:
RPN Mode:
1. Key in the sales price per unit and press \.
2. Key in the variable cost per unit and press -.
3. Key in the number of units and press §\\.
4. Key in the fixed cost and press -z to obtain the operating leverage.
ALG Mode:
1. Key in the sales price per unit and press -.
2. Key in the variable cost per unit and press §.
3. Key in the number of units and press ³.
4. Key in the fixed cost and press àbÞy to obtain the operating leverage.
Example 1: For the data given in example 1 of the Break-Even Analysis section,
calculate the operating leverage at 2000 units and at 5000 units when the sales price is $13
a copy.
12c platinum / 12C
RPN Keystrokes
13\
6.75-
2000§\
\12000-z
13\
6.75-
5000§\
\12000-z
12c platinum
ALG Keystrokes
13-
6.75§
2000³12000
àbÞy
13-
6.75§
5000³12000
àbÞy
Investment Analysis
Display
Price per copy.
13.00
Profit per copy.
6.25
Close to break-even point.
25.00
Price per copy.
13.00
Profit per copy.
6.25
Operating further from the
1.62
breakeven point and less
sensitive to changes in sales
volume.
59
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