The next question after is "Estimate the
new operating income if total sales increase by 10%?"
Homework Answers
1)
Contribution margin:
= 7,700 X ($90 - $18)
= $554,400
Operating income:
= $554,400 - $464,400
= $90,000
Degree of operating leverage:
= Contribution margin / Operating income
= $554,400 / $90,000
= 6.16
2)
Increase in operating income:
= 6.16 X 10
= 61.6%
New operating income:
= $90,000 + ($90,000 X 61.6%)
= $145,440
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