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