# Degree of Operating Leverage Calculator

## What does it do?

The degree of operating leverage calculator shows the effect on operating income of the cost structure of a business.

The use of the degree of operating leverage is discussed more fully in our operating leverage tutorial.

The calculator works out both the degree of operating leverage and the operating leverage, and allows for details relating to two businesses or accounting periods to be entered so that comparisons can be made.

## Degree of Operating Leverage Formula

This calculator works out the degree of operating leverage using the following formula:

`Degree of operating leverage = Contribution margin / Operating income`

In addition the calculator also works out the operating leverage of the business using the formula:

`Operating leverage = Fixed cost/ Total cost`

## Instructions

The Excel degree of operating leverage calculator, available for download below, is used to calculate the degree of operating leverage by entering details relating to the quantity of units sold, the unit selling price and cost price, and the fixed costs of the business. The calculator is used as follows:

### Step 1

Enter the titles for the two columns. This might be for the same business for different accounting periods, or for different businesses requiring comparison.

### Step 2

Enter the quantity of units sold, unit selling price and unit cost price information for each business. The degree of operating leverage calculator works out the contribution margin per unit sold.

### Step 3

Enter the fixed costs of the business. The calculator produces the income statement of the business based on the quantity of units entered in Step 2.

### Step 4

The calculator uses the formulas above to calculate the degree of operating leverage and the operating leverage for each business.