Selling price should exceed variable cost to generate a positive contribution margin.
Operating income is near zero around break‑even, so leverage becomes very large in magnitude.
Leverage curve (DOL vs quantity)
Results
Contribution margin (CM)
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Operating income (EBIT)
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DOL (single‑period)
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Break‑even Q
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| Metric | Value |
|---|
Example data
Use these sample scenarios for quick testing.
| P | V | F | Q | Approx DOL | Action |
|---|
Formulas used
- Sales = P × Q, Variable Cost = V × Q, Contribution Margin = Sales − Variable Cost = Q × (P − V)
- Operating Income (EBIT) = Contribution Margin − Fixed Costs = Q × (P − V) − F
- Single‑period leverage at a volume: DOL = Contribution Margin ÷ EBIT (defined only when EBIT ≠ 0)
- Break‑even quantity: QBE = F ÷ (P − V) (requires P > V)
- Approximate leverage between two volumes Q1, Q2: DOL ≈ (ΔEBIT / EBIT1) ÷ (ΔSales / Sales1) with Salesi = P × Qi and EBITi = Qi(P − V) − F
Interpretation: a DOL of 3 suggests a 1% change in sales leads to roughly a 3% change in operating income near the measured point.
How to use this calculator
- Enter unit price, variable cost, fixed costs, and expected quantity.
- (Optional) Provide a second quantity to compute an approximate leverage between two volumes.
- Click Calculate. Review contribution margin, operating income, single‑period leverage, break‑even quantity, and margin of safety.
- Study the leverage curve to see how sensitivity grows near break‑even.
- Export the results to CSV or PDF for documentation or sharing.
Tip: extremely high or negative values of DOL often arise when operating income is close to zero or negative.
FAQs
High leverage means small percentage changes in sales produce larger percentage changes in operating income. This typically occurs when fixed costs are sizable relative to contribution margin.
At break‑even, operating income is approximately zero, so the denominator of DOL is near zero, driving the ratio to a very large magnitude.
Yes. When operating income is negative, the single‑period DOL will be negative, indicating that increases in sales may reduce losses at an accelerating rate until break‑even.
No. DOL varies with volume; it is highest near break‑even and tends to decline as contribution margin increasingly exceeds fixed costs.
Margin of safety measures how far current sales are above break‑even. A larger margin of safety generally corresponds to lower operating leverage risk.