Problem: What conditions/factors cause a business to have a high degree of operating leverage as compared to others?
It is a good idea to understand the percentage of margin we are creating. In this way, we can keep an eye on the amount of revenue, cost and gross profit; and compare these to prior periods so we can review the trends and use the information to make decisions. What other information can this tell us?
It is good to purchase a large quantity of widgets, or will you possibly get stuck in the end with a warehouse full of unsellable widgets?
This is also the idea of covering your costs. The margin itself is how much "profit" or gross profit we make "per unit sold". That is, the sales value less the cost of making that particular item. The cost to manufacture will be the materials and labor. The remainder will be profit to be used to pay our other general expenses. What else can we use this information for? If the margin is not positive, or large enough, what steps can we take to correct this?