Teddy Dog Food Incorporated Lesson 5: Degree of Operating Leverage 1. Review the two income statements below. Notice how both income statements result in the same $100 profit. However, notice how the variable expense and fixed expense are reversed in the second statement. Low Fixed Expense Income Statement: 2. Calculate the Degree of Operating Leverage for each income statement. Does the Income Statement with the lower fixed expense or higher fixed expense have the greater Degree of Operating Leverage? Degree of Operating Leverage =CM/NOI Degree of Operating Leverage = Degree of Operating Leverage = Degree of Operating Leverage = 3. Re-create each of the above income statements assuming a 20% increase in sales ( 20 units or $200 increase) Low Fixed Expense Income Statement: High Fixed Fxnenee Income Statement: 4. Using a formula, determine the expected percentage increase in NOI based upon the 20% increase in sales. Use your updated income statement to prove that this percentage increase is correct