Question

Carver Packing Company reports total contribution margin of $49,200 and pretax net income of $24,600 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:

Answer 1

Answer: 2.0 and 16%

Explanation:

The degree of operating leverage and the expected percent change in income, will be calculated thus:

Operating leverage will be:

= Contribution margin / Net operating income

= 49200 / 24600

= 2

Then, percentage change in income will be:

= %change in sale × operating leverage

= 8% × 2

= 16%