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Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store:

Sales price per pair of sandals	$	32
Variable expenses per pair of sandals		16
Contribution margin per pair of sandals	$	16
Fixed expenses per year:
Building rental	$	9,600
Equipment depreciation		12,000
Selling		9,600
Administrative		16,800
Total fixed expenses	$	48,000

3. Angie has decided that she must earn a profit of $16,000 the first year to justify her time and effort. How many pairs of sandals must be sold to attain this target profit?

5. Refer to the original data. During the first year, the store sold only 3,500 pairs of sandals and reported the following operating results:

Sales (3,500 pairs)	$	112,000
Variable expenses		56,000
Contribution margin		56,000
Fixed expenses		48,000
Net operating income	$	8,000

a. What is the stores degree of operating leverage?

b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase sales by 50%?