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Unformatted text preview: costs will experience MORE variable operating income if sales change. Fixed Costs = Operating Leverage = Business Risk Question: Why do HIGH fixed costs create more variability? With high operating leverage , a small increase in sales produces a relatively larger increase in operating income . Stop to Note: This is the top area of the income statement from sales to EBIT. Operating Leverage : by using fixed operating costs, a small change in sales revenue is magnified into a larger change in operating income . This “multiplier effect” is called the degree of operating leverage (DOL). Example #1: DOL = 2 A 1% increase in sales will result in a 2% increase in operating income (EBIT) ....
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