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Factory

Unit 5 - Operations management

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Chart Increasing

Unit 1 - Introduction To Business Management

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Briefcase

Unit 2 - Human Resource Management

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Money Bag

Unit 3 - Finance & accounts

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Direct Hit

Unit 4 - Marketing

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Bar-Chart

Unit 6 - Assessment

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!

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.

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!

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😉 Happy studying! 📚🚀

Unit 5 - Operations management

Unlock The Power Of Operating Leverage For Max Profits

Table of content

📌 Operating leverage

🍕 What is operating leverage?

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

🧮 Math alert! operating leverage formula

Unlock the Full Content!

Unit 5 - Operations management

Unlock The Power Of Operating Leverage For Max Profits

Table of content

📌 Operating leverage

🍕 What is operating leverage?

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

🧮 Math alert! operating leverage formula

Unlock the Full Content!