Question

Leftie Corporation has provided the following contribution format income statement. The following information is within the relevant range. Sales (2,000 units) $ 120,000 Variable expenses 90,000 Contribution margin 30,000 Fixed expenses 16,500 Net operating income $ 13,500 Using the degree of operating leverage, the estimated percent increase in net operating income as the result of a 10% increase in sales is closest to: (Round your intermediate calculations to 1 decimal place.)

Answer 1

Answer:

22.2%

Explanation:

The computation of the estimated percent increase in net operating income is shown below:

The degree of operating leverage is

= Contribution margin ÷ net operating income

= $30,000 ÷ $13,500

= 2.22%

Now if it increased by 10%

So, the percentage increase in

= 2.22% × 10

= 22.2%

Hence, the estimated percentage increase in net operating income is 22.2%