Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000. Given this data, the company's degree of operating leverage must have been:

Question

Catalina Hensley

Business

1 November, 19:12

Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000. Given this data, the company's degree of operating leverage must have been:

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Answers (1)

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George Ewing · Answer 1

degree of operating leverage = 4

Explanation:

Giving the following information:

Sales in North Corporation increased from $60,000 per year to $63,000 per year while net operating income increased from $10,000 to $12,000.

The degree of operating leverage is the %change in the operating income, divided by the change in sales. It measures how much of the operating income varies with changes in sales.

degree of operating leverage = % change on income / % change on sales

degree of operating leverage = [ (12,000 - 10,000) / 10,000] / [ (63,000 - 60,000) / 60,000]

degree of operating leverage = 0.2 / 0.05 = 4