Studies show that operating leverage is the accounting notion that explains why the percentage change in a company’s net earnings is usually greater than the corresponding percentage change in its revenue (McDaniel, 1984). If all of a company’s cost were variable, then its earnings would rise and fall by exactly the same percentage as the rise or fall of its revenues. In this case study the accounting concept involved in these calculations is called operating leverage. It is calculated by dividing the contribution margin by the net income. It indicates the extent to which the net income will be influenced (positively or negatively) by the change in the sales level.
The different costs incurred by Home Depot can be classified broadly into two
The different costs incurred by Home Depot can be classified broadly into two