Question
The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs
The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed costs for administration of $79,525. The per-unit costs of each umbrella are as follows:
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead: $0.40
Variable Selling Expenses: $1.10
Calculate the degree of operating leverage. Assume that sales will increase by 20% in 2015. Calculate the percentage of before-tax income for this increase. Provide calculations to prove that your percentage increase is correct based on the operating leverage calculated
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