Question

At a sales level of $270,000, the magnitude of operating leverage for the Cake Factory is 2.8. If sales increase by 15%, profits will increase by: a. 2.8% b. 15% c. 42% d. 18.67%

Answer 1

Answer:

Increase in profit will be 42 %

So option (C) will be correct answer

Explanation:

We have given sales level is $270000

Operating leverage for the factory is given 2.8

It is given that sales is increased by 15 %

We have to find that by how much percentage profit will increase

Increase in profit percentage is given by multiplication of operating leverage and increase in profit sale

So increase in profit will be equal to 2.8 ×15 = 42 %

So option (C) will be correct answer