Homework Answers
Question 1
| Greenback | Store | One | Mart | |
| Particulars | Amount | Percentage | Amount | Percentage |
| Sales | 800,000 | 100% | 800,000 | 100% |
| Variable Costs | 600,000 | 75% | 200,000 | 25% |
| Contribution Margin | 200,000 | 25% | 600,000 | 75% |
| Fixed Costs | 40,000 | 5% | 440,000 | 55% |
| Operating Profit | 160,000 | 20% | 160,000 | 20% |
Notes
Greenback Store
Variable Costs % = 100% - Contribution Margin Percentage
Variable Costs % = 100% - 25% = 75%
Variable Costs = 75% of $ 800,000 = $ 600,000
Operating Profit = Sales - Variable Cost - Fixed Costs
For One Mart
Variable Costs % = 100% - Contribution Margin Percentage
Variable Costs Percentage = 100% - 75% = 25%
Variable Costs = 25% of $ 800,000 = $ 200,000
Operating Profit = Sales - Variable Costs - Fixed Costs
Additional Note
Fixed Costs Percentage = Fixed Costs / Sales * 100
Operating Profit Percentage = Operating Profit / Sales * 100
Question 2
For Green Mart
Degree of Operating Leverage = Contribution Margin / Operating Income
Contribution Margin = $ 200,000
Operating Income = $ 160,000
Degree of Operating Leverage = 200,000 / 160,000 = 1.25 Times
Now Calculation of Increase in Profit with 15% Increase in Sales
Degree of Operating Leverage = % Change in Operating Income / % Change in Sales
1.25 = % Change in Operating Income / 15%
% Change in Operating Income = 1.25 * 15% = 18.75%
Increase in Income = Income before Change in Sales * % Change in Operating Income
Increase in Income = 160,000 * 18.75%
Increase in Income = $ 30,000
For One Mart
Degree of Operating Leverage = Contribution Margin / Operating Income
Contribution Margin = $ 600,000
Operating Income = $ 160,000
Degree of Operating Leverage = 600,000 / 160,000 = 3.75 Times
Now Calculation of Increase in Profit with 15% Increase in Sales
Degree of Operating Leverage = % Change in Operating Income / % Change in Sales
3.75 = % Change in Operating Income / 15%
% Change in Operating Income = 3.75 * 15% = 56.25%
Increase in Income = Income before Change in Sales * % Change in Operating Income
Increase in Income = 160,000 * 56.25%
Increase in Income = $ 90,000
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