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At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If sales increase by 15%, profits will increase by:

a.

15%

b.

18.67%

c.

2.8%

d.

42%

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Answers (1)
  1. 31 May, 04:36
    0
    Option D is correct (42%)

    Explanation:

    Option D is correct (42%)

    In order to find the profit we will proceed as follow:

    Given dа ta:

    Operating leverage for Donuts Unlimited=2.8

    Increase in sale=15%

    sales level = $270,000

    Required:

    Increase in Profit=?

    Solution:

    % Increase In profit/net income=% Increase in Sales*Operating leverage

    % Increase In profit=15%*2.8

    % Increase In profit=42%
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