Lubke Corporation's contribution format income statement for the most recent month follows: Sales$506,000Variable expenses 236,500Contribution margin 269,500Fixed expenses 241,700Net operating income$27,800 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 3% increase in sales.
What will be an ideal response?
a.
Degree of operating leverage = Contribution margin ÷ Net operating income
= $269,500 ÷ $27,800 = 9.69
b.
Percent increase in net operating income = Percent increase in sales × Degree of operating leverage
= 3% × 9.69 = 29.07%
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