Mary Smith sells gourmet chocolate chip cookies. The results of her last month of operations are as

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Mary Smith sells gourmet chocolate chip cookies. The results of her last month of operations are as follows:

Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,000

Cost of goods sold (all variable) . . . . . . . . . . .     32,000

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .     26,000

Selling expenses (70% variable)  . . . . . . . . . . .       8,000

Administrative expenses (20% variable) . . . . .    12,000

Operating income . . . . . . . . . . . . . . . . . . . . . . . .   $6,000


Required

a. What is Mary’s degree of operating leverage?

b. If Mary can increase sales by 15%, by what dollar amount will her operating income increase?

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Managerial Accounting

ISBN: 9781119577669

4th Edition

Authors: Charles E. Davis, Elizabeth Davis

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