Question

Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000. Given this data, the company's degree of operating leverage must have been:

Answer 1

Answer:

degree of operating leverage= 4

Explanation:

Giving the following information:

Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000.

The degree of operating leverage is the %change in the operating income, divided by the change in sales. It measures how much of the operating income varies with changes in sales.

degree of operating leverage= % change on income/ % change on sales

degree of operating leverage= [(12,000 - 10,000)/10,000] / [(63,000 - 60,000)/60,000]

degree of operating leverage= 0.2 / 0.05= 4