Define operating leverage. Explain the relationship between a company's operating leverage and how a change in sales is expected to impact profits.

Operating leverage is the relationship between a company's contribution margin and its operating income. Companies with a high level of fixed costs have a high operating leverage, and companies with low fixed costs have a low operating leverage.To determine how a change in sales will impact operating income, you must multiply the anticipated percentage change in sales by the operating leverage. Thus, the higher a company's operating leverage, the larger the anticipated increase in operating income from a change in sales.