ATC $3-4$ Writing Assignment Operating leverage, margin of safety, and cost behavior

In its Form $10-$K Skechers U$.$S$.$A$.,$ Inc., describes itself as follows:

We design and market Skechers$-$branded lifestyle footwear for men, women and children, and performance foot$-$

wear for men and women under the Skechers GO brand name.... As of February $1,2017,$ we owned and operated

$117$ concept stores, $163$ factory outlet stores and $134$ warehouse outlet stores in the United States, and $101$ concept

stores, $51$ factory outlet stores, and $5$ warehouse outlet stores internationally.

The popularity of Skechers' products has increased significantly in recent years. Sales increased from

$$1,560\mathrm{.}3$ million in $2012$ to $$3,563\mathrm{.}3$ million in $2017,$ for an increase of $128\mathrm{.}4$ percent. In the same period,

operating income increased from $$22\mathrm{.}3$ million to $$370\mathrm{.}5$ million, for an increase of $1,561\mathrm{.}4$ percent. It

should be noted that this growth was not the result of larger acquisitions of or mergers with other companies.

Required

Write a memorandum that explains how a $128$ percent increase in sales could cause a $1,561$ percent

increase in profits. Your memo should address the following:

a$.$ An identification of the accounting concept involved.

b$.$ A discussion of how various major types of costs incurred by Skechers were likely affected by the

increase in its sales.

c$.$ The effect of the increase in sales on Skechers' margin of safety.