IGNOU BCOE 142 2026 2027 - From the following particulars compute leverage ratios

Question

From the following particulars compute leverage ratios

07 Aug 2026

Answer :

Word Count : 470

The calculation of leverage ratios in Management Accounting requires the relevant financial particulars, such as sales, variable cost, fixed operating cost, EBIT, interest, contribution, and capital employed. However, the particulars referred to in the question have not been provided. Leverage ratios are generally used to measure the effect of fixed costs and fixed financial charges on the profitability of a business. The main leverage ratios are Operating Leverage, Financial Leverage, and Combined Leverage. Operating Leverage measures the relationship between contribution and operating profit. It arises because a business has fixed operating costs. It indicates the effect of a change in sales on operating profit. Operating Leverage = Contribution / EBIT where: Contribution = Sales − Variable Cost and EBIT = Contribution −

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