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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › operating gearing
good evening
2 firms have the following cost structures:
Sales ——————- 5——–5
variable costs———(3)——-(1)
fixed costs ————(1)——-(3)
EBIT——————–1———-1
what is the level of operating gearing in each.
there are 3 ways to calculate op. gearing. and each gives a different answer. which one to use??
fixed costs/variable costs==================1/3=======3/1
fixed costs/total costs=====================1/4=======3/4
the answer is using fixed/total.
please explain
thank u
You can use either – there is no standard measure of operating gearing.
If it is in Section A of the exam then the examiner would have to define which measure to use.