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Explain operating leverage. Is it possible to estimate operating leverage from a traditional GAAP...

Question:

Explain operating leverage.

Is it possible to estimate operating leverage from a traditional GAAP accounting income statement?

The Income Statement

The income statement, one of the four required reports for financial reporting under Generally Accepted Accounting Principles, details the revenues and expenses of a business during the current reporting period.

Answer and Explanation:

Operating leverage is the amount that a business can increase income by increasing revenue.

While the majority of information for operating leverage exists on the income statement, the contribution margin must also be available, which requires the variable costs. This is not traditionally found on the income statement.


Learn more about this topic:

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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
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