Computing Operating Leverage

Suppose the Coffee Bean has a new shop in a Cambridge village shopping center that sells high$-$end teas and coffees. Further, suppose it has added smoothie drinks to its product line. Below are the assumed

sales and cost data for the company.

Assume that the company sells each month an average of $15,600$ servings of coffee, $9,750$ servings of tea, and $5,850$ servings of smoothies.

REQUIRED

a$.$ Calculate Coffee Bean's operating leverage ratio

b$.$ If sales increase by $20\%,$ by how much will before$-$tax profit be expected to change?

$

c$.$ If sales decrease by $20\%,$ by how much will before$-$tax profit be expected to change?

$

Note: Use a negative sign with your answer to indicate a decrease in profits.