Suppose SueSue

sells

2,000

posters. Her average sales price per poster is

$ 30

and her average cost per poster is

$ 20

Her fixed expenses total

$10,000.

Compute her operating leverage factor. If sales volume increases

10%,

by what percentage will her operating income change? Prove your answer.

Compute her operating leverage factor.

First identify the formula, then compute the operating leverage factor.

Contribution margin

/

Operating income

=

Operating leverage factor

$20,000

/

$10,000

=

2.00

If sales volume increases

10%,

by what percentage will her operating income change? Operating income will increase by

20%.

Prove your answer.

Original volume (posters)
Add: Increase in volume
New volume (posters)
Multiplied by: Unit contribution margin
New total contribution margin
Less: Fixed expenses
New operating income
Less: Operating income before change in volume
Increase in operating income
Percentage change		%