Question

ABC Company expects to sell 1,000 computers and earn operating income of $30,000 next year. Its degree of operating leverage is 2.5 The company plans to increase sales by 20%. What is the new expected operating income for the company for next year? $ 45000 $ 30000 $ 75000 $ 12000

Answer 1

Answer:

New expected operatimg income is $ 45,000

Explanation:

Degree of Operating leverage = %change in operating income

                                                     % change in sales

2.5 = % change in operating income

                 20%

2.5 × 0.2 = % change in operating income

0.5 or 50%  = % change in operating income

50% = x-30,000

           30,000

0.5× 30,000 = x- 30,000

15,000 + 30,000 =  x

$45000 = x