Question

Carver Packing Company reports total contribution margin of $95,400 and pretax net income of $21,200 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:

Answer 1

Answer:

Degree of operating leverage= 4.5

Expected percentage change in income = 36%

Explanation:

To find the degree of operating leverage we use the formula:

Degree of operating leverage= contributing margin/ net income

= 95400 / 21200 =4.5

For percentage change in income we use:

Expected % change in income = % increase in sale * degree of operating leverage

= 8% * 4.5 =

= 36%