In the most recent month, Sardella Corporation's total contribution margin was $46,200 and its net operating income $13,200. Required:a. Compute the degree of operating leverage to two decimal places.b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 10% increase in sales.
What will be an ideal response?
a.
Degree of operating leverage = Contribution margin ÷ Net operating income
= $46,200 ÷ $13,200 = 3.50
b.
Percent increase in net operating income = Percent increase in sales × Degree of operating leverage
= 10% × 3.50 = 35.00%
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