Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage

Head-First Company had planned to sell 5,000 bicycle helmets at $78 each in the coming year. Unit variable cost is $40 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $140,500. The degree of operating leverage is 1.4. Now Head-First expects to increase sales by 10% next year.

Required:

1. Calculate the percent change in operating income expected. fill in the blank

2. Calculate the operating income expected next year using the percent change in operating income calculated in Requirement 1. fill in the blank