Question
Sales = ₹200 lakhs, Variable cost = ₹120 lakhs,
Fixed cost = ₹30 lakhs Interest = ₹10 lakhs Calculate (i) Operating Leverage and (ii) Financial LeverageSolution
Contribution = Sales – VC = ₹80L EBIT = Contribution – FC = ₹80 – ₹30 = ₹50L Operating Leverage = Contribution / EBIT = 80 / 50 = 1.6 Financial Leverage = EBIT / EBT = 50 / (50 – 10) = 50/40 = 1.25
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