d) After completing Exercise 4, what is the level of operating leverage? See circle.

OPERATING LEVERAGE Measures the mix of a business's variable costs and fixed costs. Operating Leverage can be used to evaluate the impact on Net Income from a change in Sales. The fomula to calculate Operating Leverage is: Operating Leverage- Contribution Margin Net Income EXERCISE 4: Rice Corp. has $800,000 in Sales, $200,000 in Variable Costs and $400,000 in Fixed Costs. Calculate the Operating Leverage for the company. You must first calculate the Contribution Margin and Net Income. Sales Variable Costs Contribution Margin Fixed Costs Net Income Operating Leverage Contribution Margin / Net Income I $ If Sales increased by 5%, what would be the increase in Operating Income? 5% increase X operating leverage . % increase in OI Use the schedule below to prove this relationship: +5% in Sales Original Data Sales $800,000 Vanable Costs(200,00 Contribution Margin Fixed Costs Operating Income $600,000 (400,000) $200,000 $200,000-1 Dollar increase above / % Increase $200,000