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Factory

Unit 5 - Operations management - QB

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Chart Increasing

Unit 1 - Introduction To Business Management - QB

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Briefcase

Unit 2 - Human Resource Management - QB

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Money Bag

Unit 3 - Finance & accounts - QB

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Direct Hit

Unit 4 - Marketing - QB

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Bar-Chart

Unit 6 - Assessment

Imagine you own a pizza shop! 🍕 Every month, there&#39;s a cost to rent the shop (fixed cost) and the cost of ingredients for each pizza you make (variable cost).

&nbsp;

Operating Leverage tells us how much of our costs are fixed versus how much they change based on the number of pizzas (or products) you sell.

Did you know? This is for the pros, so if you&rsquo;re reading this, you&rsquo;re on your way to becoming a business wiz!

Remember the break-even analysis from Chapter 5.5? It&#39;s like the moment you&#39;ve sold enough pizzas to cover your costs. Operating leverage uses similar data!

Here it is, presented in a way even your little sibling would get!

&nbsp;

Operating&nbsp;Leverage =&nbsp;\(\frac{number\ of\ pizzas×(price\ per\ pizza−cost\ of\ ingredients\ per\ pizza)}{number\ of\ pizzas×(price\ per\ pizza−cost \,of \,ingredients\, per\, pizza)−shop\, rent }\)

📈 High Operating Leverage

<ul>
	<li>Picture this: Huge theme park with big roller coasters! They have to pay a lot every month to maintain those rides, even if no one comes (high fixed costs).</li>
	<li>But, once they cover those costs, every extra ticket sold is major profit.</li>
</ul>

📉 Low Operating Leverage

<ul>
	<li>Imagine a pop-up food stall. Their costs mostly come from the food they buy to sell (variable costs).</li>
	<li>They may not have a big shop to maintain, so their fixed costs are lower.</li>
</ul>

Netflix 🎥: Think about it! They pay a lot for producing or acquiring shows and maintaining their platform. These are mostly fixed costs. Every new subscriber is extra revenue without adding much cost.

&nbsp;

Local Fruit Vendor 🍎: They pay as they get fruits. Their costs rise as they get more fruits (variable cost). But, they don&#39;t have big overheads like a movie production!

<ul>
	<li>Operating Leverage helps understand the structure of costs.</li>
	<li>It&#39;s crucial for planning - Knowing whether you&#39;re more like Netflix or a fruit vendor helps in making decisions.</li>
</ul>

Remember, young business Padawan, with great power (or leverage) comes great responsibility!

&nbsp;

😉 Happy studying! 📚🚀

Unit 5 - Operations management - QB

Unlock The Power Of Operating Leverage For Max Profits

Table of content

🍕 What is operating leverage?

📌 Operating leverage

🔍 How it's linked with break - even analysis?

🧮 Math alert! operating leverage formula

Unlock the Full Content!

Unit 5 - Operations management - QB

Unlock The Power Of Operating Leverage For Max Profits

Table of content

🍕 What is operating leverage?

📌 Operating leverage

🔍 How it's linked with break - even analysis?

🧮 Math alert! operating leverage formula

Unlock the Full Content!