Founders Company has recently become aware of the large total discounts on its orders and would like to know the impact on profit. The company computed its operating profit as follows:

Net sales after discounts $200,000

Variable costs 80,000

Contribution margin $120,000

Fixed costs 70,000

Operating profit 50,000

1) Suppose Founders could reduce its sales discounts to produce a 10% increase in net revenues but no changes in variable or fixed costs. By what percent would operating profits increase? How does the percentage compare to the percentage increase in net sales revenue?

2) Consider the ratio of operating profit to sales. How does this ratio relate to the percentage change in operating profit, for a given percentage change in the net sales revenue?