After completing Exercise 4, what is the level of operating leverage? See circle in the photo below.

100 OPERATING LEVERAGE Measures the mix of a business's variable costs and fixed costs. Operating Leverage can be used to evaluate the impact on Net Income from a change in Sales. The formula to calculate Operating Leverage is: Operating Leverage = Contribution Margin / Net Income EXERCISE 4: Rice Corp. has $800,000 in Sales, $200,000 in Variable costs and $400,000 in Fixed Costs. Calculate the Operating Leverage for the company. You must first calculate the Contribution Margin and Net Income. Sales $ Variable Costs ) Contribution Margin $ Fixed Costs ( ) Net Income $ Contribution Margin / Net Income = Operating Leverage $ I $ = If Sales increased by 5%, what would be the increase in Operating Income? 5% increase X operating leverage = % increase in Ol Use the schedule below to prove this relationship: Original Data +5% in Sales Sales $800,000 $ Variable Costs (200,000) ( ) Contribution Margin $600,000 $ Fixed Costs (400,000) ( ) Operating Income $200,000 $ % Increase Dollar increase above / $200,000 = $ / $200,000 = %