Answer: B. 60 percent (sales increase of 60 percent would be required to achieve the same percentage increase in profit).
Explanation:
Annual sales = $500,000,000
Purchases = $300,000,000
Revised purchases = $300,000,000 × (100% - 15%) = $300,000,000 × 85%
= $255,000,000.
Current profit = $75,000,000
Current profit percentage = $75,000,000 / $500,000,000
= 15%
Additional profit due to the reduction in the purchases = Purchases - Revised purchases
= $300,000,000 - $255,000,000
= $45,000,000
Additional sales made = $45,000,000 / 15% = $300,000,000.
Profit Leverage effect = $300,000,000 / $500,000,000 = 0.6 = 60%
Therefore,the correct option is B.
