4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $10,000 per year toconvert the part-time position to a full-time position. Angie believes that the change would bring in an additional $32,000 in sales eachyear. Should she convert the position? Use the incremental approach.NoYes5.Refer to the original data. During the first year, the store sold only 68,500 pairs of sandals and reported the following operating results$137,00082 200$ 54,80049,600Sales (68,500 pairs)Variable expensesContribution marginFixed expensesNet operating income$ 5,2001/2o.mheducation.com/hm.tpxChapter 3 Homeworka.What is the store's degree of operating leverage? (Round your answer to 2 decimal places.)Degree of operating leverageb. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 5 %next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept tocompute your answer. Round your percentage answer to 2 decimal places (Le .1234 should be entered as 12.34)%Expected percentage increase in net operating income

Question
Asked Aug 1, 2019

Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store:

 

   
Sales price per pair of sandals $ 2.00  
Variable expenses per pair of sandals   1.20  
Contribution margin per pair of sandals $ 0.80  
Fixed expenses per year:      
Building rental $ 9,000  
Equipment depreciation   5,000  
Selling   17,600  
Administrative   18,000  
Total fixed expenses $ 49,600
4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $10,000 per year to
convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $32,000 in sales each
year. Should she convert the position? Use the incremental approach.
No
Yes
5.Refer to the original data. During the first year, the store sold only 68,500 pairs of sandals and reported the following operating results
$137,000
82 200
$ 54,800
49,600
Sales (68,500 pairs)
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$ 5,200
1/2
o.mheducation.com/hm.tpx
Chapter 3 Homework
a.What is the store's degree of operating leverage? (Round your answer to 2 decimal places.)
Degree of operating leverage
b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 5 %
next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to
compute your answer. Round your percentage answer to 2 decimal places (Le .1234 should be entered as 12.34)
%
Expected percentage increase in net operating income
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4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $10,000 per year to convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $32,000 in sales each year. Should she convert the position? Use the incremental approach. No Yes 5.Refer to the original data. During the first year, the store sold only 68,500 pairs of sandals and reported the following operating results $137,000 82 200 $ 54,800 49,600 Sales (68,500 pairs) Variable expenses Contribution margin Fixed expenses Net operating income $ 5,200 1/2 o.mheducation.com/hm.tpx Chapter 3 Homework a.What is the store's degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 5 % next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to compute your answer. Round your percentage answer to 2 decimal places (Le .1234 should be entered as 12.34) % Expected percentage increase in net operating income

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check_circleExpert Solution
Step 1

As there is additional revenue of $22,000, The Sandal Shop will be profited if the part-time salesperson position is converted into full-time salesperson.

Computation of Incremental
Revenue
Amount in
Particulars
Additional Sales
32,000
Less:
Additional Sales Expenses
Incremental Revenue
-10,000
22,000
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Computation of Incremental Revenue Amount in Particulars Additional Sales 32,000 Less: Additional Sales Expenses Incremental Revenue -10,000 22,000

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Step 2

Degree of Operating Leverage:  Degree of operating leverage is an efficiency ratio which evaluates the efficiency of fixed cost to generate revenue.

 

Given Data:

Contribution     = $54,800

Fixed Expense  = $49,600

Contribution
Operating Leverage =
Contribution-Fixed Operating Cost
54800
Operating Leverage
49600
=1.10
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Contribution Operating Leverage = Contribution-Fixed Operating Cost 54800 Operating Leverage 49600 =1.10

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Step 3

Computation of Operating Income using the Degree of Operating Leverage.

Given :

Net Operating Income = $5,200

Increase in Sales = 5%

Which implies increase in contribution margin is 5%

Therefore, New Contribution = $54,800*105%

        ...

Sales-Variable costs
Operating Leverage =
Net Operating Income
Therefore,
Sales-Variable cost
Net Operating Income
Operating Leverage
57540
Net Operating Income
1.10
=5230.90
5230.90-5200
% Increase in Net operating income
*100
5200
30.9
100
5200
0.594%
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Sales-Variable costs Operating Leverage = Net Operating Income Therefore, Sales-Variable cost Net Operating Income Operating Leverage 57540 Net Operating Income 1.10 =5230.90 5230.90-5200 % Increase in Net operating income *100 5200 30.9 100 5200 0.594%

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