Picasso's Pantry is a chain of arts and crafts stores. Results for the most recent year are
Question:
Picasso's Pantry is a chain of arts and crafts stores. Results for the most recent year are as follows:
Required
a. What is Picasso’s Pantry’s degree of operating leverage?
b. If sales increase by 5%, what will the new operating income be?
c. Managers are considering changing Picasso’s cost structure by offering employees a commission on sales rather than a fixed salary. What effect would such a change have on the firm’s operating leverage?
Transcribed Image Text:
$900 100 Sales revenue Variable expenses $5,000,000 Fixed expenses Total expenses Operating income 2,000,000 7,000,000 $2,000,000
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