IMPACT OF INCREASED SALES ON OPERATING INCOME USING THE DEGREE OF OPERATING LEVERAGE Head-First Company had planned to sell 5,000 bicycle helmets at $70 each in the coming year. Unit variable cost is $49 (includes direct materials, direct labor, variable overhead, and variable selling expense). Total fixed cost equals $29,400 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $75,600. The degree of operating leverage is 1.4. Now Head-First expects to increase sales by 15 percent next year.

Required:

. Calculate the percent change in operating income expected.

. Calculate the operating income expected next year using the percent change in operating income calculated in Requirement 1.

Exercises Exercise