Operational gearing

Operational gearing refers to the relationship of fixed costs to total costs. The greater the proportion of fixed costs, the higher the operating gearing, and the greater the advantage to the business of increasing sales volume. If sales drop, a business with high operating gearing may face a problem from its high level of fixed costs.

 

reference: Business Studies / Accounting. Accounts & Finance Glossary. Jim Riley BA(Hons) MBA FCA // tutor2u

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