A mid$-$sized home improvement company, Buildwise, is evaluating the cost structure and profit$-$building potential of its lumber business in light of changing industry circumstances. Up until now, it has been selling lumber in one location very effectively and profitably, as evidenced by its most current income results, presented in the following contribution margin format.

Sales

$$400,000$

Variable costs

$120,000$

Contribution margin

$280,000$

Fixed costs

$200,000$

Operating income

$$80,000$

The changing circumstances in the industry relate to a key competitor, which $($rumor has it$)$ will be filing for bankruptcy very soon. If this happens, Buildwise anticipates an almost immediate $20\%$ jump in its lumber sales volume, with additional increases likely over time.

Required

$($Round to two decimal places where necessary or appropriate.$)$

A$)$ For the current period, what is the degree of operating leverage for Buildwise$$s lumber business?

B$)$ Assuming that the rumor is true, and further assuming that the predicted immediate higher sales level for Buildwise fits within the company$$s current capacity, what would happen to its income?

C$)$ Buildwise wants to appropriately plan for the future. If the competitor does go out of business, Buildwise will need to increase its lumber capacity to handle the long$-$range increase in sales volume. It predicts volume could increase by as much as $40\%$ from current levels within one year$$s time of the competitor closing. Management and board discussions recommend planning for an expansion that would increase its current fixed costs by $50\%.$ How much additional volume $($compared to that in part $($b$))$ would be needed to cover these higher fixed costs and still generate the same income as calculated in part $($b$)?$

Determine degree of operating leverage and its impact on income.