Question
Suppose Katie sells 1800 posters. Use the following financial data ($32 sales price, $27 variable cost, $2800 fixed expenses) to compute her operating leverage factor.
Suppose Katie sells 1800 posters. Use the following financial data ($32 sales price, $27 variable cost, $2800 fixed expenses) to compute her operating leverage factor. If sales volume increases 12%, by what percent will Katie's operating income change? Prove your answer.
First, identify the formula, then compute the operating leverage factor. (Round your answer to two decimal places.)
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| Contribution margin | / | Operating income | = | Operating leverage factor |
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| = |
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If sales volume increases 16% by what percent will Katie's operating income change? (Round the percentage change to one decimal place, X.X%)
Operating income will increase by --- %.
Prove your answer. (Round the percentage change to one decimal place, X.X%)
| Original volume (posters) |
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| Add: Increase in volume |
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| New volume (posters) |
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| Multiplied by: Unit contribution margin |
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| New total contribution margin |
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| Less: Fixed expenses |
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| New operating income |
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| Less: Operating income before change in volume |
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| Increase in operating income |
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| Percentage change |
| % |
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