5. Operating leverage

The following table represents forecasted sales information for Torres Inc.

Information	Forecasted Operations	Sales with 80.00% Increase	Unit Change
	(in millions)	(in millions)	(in millions)
Sales in units	150.00	270.00	120.00
Sales revenues	$2,625.00	$4,725.00	$2,100.00
Variable cost of goods sold	(1,500.00)	(2,700.00)	(1,200.00)
Gross profit	$1,125.00	$2,025.00	$900.00
Fixed operating costs	(170.00)	(170.00)	(0.00)
Net operating income	$955.00	$1,855.00	$900.00

By how much will net operating income increase for the given increase in sales and associated expenses? ???

Using the percent change in net operating income computed in the previous section, calculate the degree of operating leverage for the projected change of 80.00% from the original forecast. ???

Assuming an identical cost structure, compared to a company with a degree of operating leverage 1.40, how risky is Torres Inc. compared to the other company?

Less risky

More risky

Equally risky