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
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:
Enter the titles for the two columns. This might be for the same business for different accounting periods, or for different businesses requiring comparison.
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.
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.
The calculator uses the formulas above to calculate the degree of operating leverage and the operating leverage for each business.
Degree of Operating Leverage Calculator Download
The degree of operating leverage calculator spreadsheet is available for download in Excel format by following the link below.
The degree of operating leverage calculator is one of many financial calculators used in bookkeeping and accounting, discover another at the links below.
Users use this degree of operating leverage calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an accounting tool that you might use when considering how to calculate operating leverage. It is purely illustrative. This is not intended to reflect general standards or targets for any particular business, company or sector. If you do spot a mistake in this degree of operating leverage excel calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.