Mcquage Corporation has provided its contribution format income statement for July. Sales$558,000Variable expenses 306,900Contribution margin 251,100Fixed expenses 209,800Net operating income$ 41,300Required: 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 19% increase in sales.
What will be an ideal response?
a.
Degree of operating leverage = Contribution margin ÷ Net operating income
= $251,100 ÷ $41,300 = 6.08
b.
Percent increase in net operating income = Percent increase in sales × Degree of operating leverage
= 19% × 6.08 = 115.52%
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