Question

LO 3.5Macom Manufacturing has total contribution margin of $61,250 and net income of $24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What are the degree of operating leverage and the expected percent change in income for Macom Manufacturing?
0.4 and 10%
2.5 and 10%
2.5 and 25%
5.0 and 50%

Answer 1

Answer:

2.5 and 25%

Explanation:

Given that,

Total contribution margin = $61,250

Net income = $24,500

Expected increase in sales volume = 10%

Degree of operating leverage:

= Total contribution margin ÷ Net income

= $61,250 ÷ $24,500

= 2.5

Percent change in income for Macom Manufacturing:

= Percentage change in sales × Degree of operating leverage

= 10% × 2.5

= 25%