Question

For 2019, selected results for a company are shown below: $ 15 $ 10,260 Price per unit Net operating income Degree of operating leverage 2.5 With no change in price or cost structure, the company expects the following for 2020: Sales Net operating income $ 183,600 $ 10,773 Given the information above, the number of units sold during 2019 must have been: (All answers are whole numbers -- unless specified otherwise. You should NOT include the $ sig comma. E.g., you should type 1000 for one thousand. Negative numbers should be added with a minus sign, e.g., -1000 for a decrease or loss of one thousand.) Sales units in 2019 =

Answer 1

Computation of sales units in 2019:

Given

Operating income (2019) = $10260

Operating income (2020) = $10773

That implies,

% change in operating income

= ($10773 - $10260)/$10260

= $513/$10260

= 0.05

= 5%

It was given that,

Degree of Operating leverage = 2.5

=> % change in operating income ÷ % change in sales =2.5

=> 5 ÷ % change in sales = 2.5

=> % change in sales = 5/2.5

=> % change in sales = 2%

It was given that,

Sales for year 2020 = $183600

Let 'X' be the Sales for the year 2019

That implies,

% change in sales = (X - $183600)/X

=> 2% = (X - $183600)/X

=> 0.02X = X - $183600

=> X - 0.02X = $183600

=> 0.98X = $183600

=> X = $183600/0.98

=> X = $187347

Sales for year 2019 = $187347

And given selling price per unit = $15

Therefore,

Sales unit for 2019

= Sales for year 2019 ÷ Selling price per unit

= $187347 ÷ $15

= 12490 units

_______×________

Let me know if you have any queries, All the best,

Kindly UPVOTE,

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