Suppose Kathy sells 2,200 posters. Use the following financial data ($40 sales price, $33 variable cost, $3,710 fixed expenses) to compute her operating leverage factor. If sales volume increases 10%, by what percent will Kathy operating income change? Prove your answer.

First, identify the formula, then compute the operating leverage factor. (Round your answer to two decimal places.)

Contribution margin

/

Operating income

=

Operating leverage factor

/

=

If sales volume increases 16% by what percent will Kathy operating income change? (Round the percentage change to one decimal place, X.X%)

Operating income will increase by --- %.

Prove your answer. (Round the percentage change to one decimalplace, X.X%)

Original volume (posters)
Add: Increase in volume
New volume (posters)
Multiplied by: Unit contribution margin
New total contribution margin
Less: Fixed expenses
New operating income
Less: Operating income before change in volume
Increase in operating income
Percentage change		%

Answer rating: 100% (QA)

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