Question

Park competes with Zip World by providing a variety of rides. Playtime Park sells tickets at $ 60 per person as a​ one-day entrance fee. Variable costs are $ 24 per​ person, and fixed costs are $ 226 comma 800 per month. The breakeven number of tickets is 6 comma 300. If Playtime Park expects to sell 7 comma 550 ​tickets, compute the degree of operating leverage​ (round to two decimal​ places). Estimate the operating income if sales increase by 10​%. Begin by selecting the formula labels and then entering the amounts to compute the degree of operating leverage for Playtime Park. ​(Round the degree of operating leverage to two decimal​ places, X.XX.) / = Degree of operating leverage

Answer 1

Answer:

degree of operating leverage:  6.04

Explanation:

degree of operating leverage:

$\frac{contribution}{profit}$

Where:

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

60 - 24 = 36

7,550 x 36 = 271.800‬ contribution margin

profit:

271,800 - 226,800 = 45,000

271,800 / 45,000 = 6.04

This indicates that an increase in sales will have a multiplier effect on the  

income by 60.4%

a ten percent increase on sales translates to 60.4% in the operating profit

a twenty percent increase transaltes to 120.8%

and so on.