BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Solutions

Chapter
Section
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
1 views

Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage

Head-First Company had planned to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $100,500. The degree of operating leverage is 1.5. Now Head-First expects to increase sales by 10% next year.

Required:

  1. 1. Calculate the percent change in operating income expected.
  2. 2. Calculate the operating income expected next year using the percent change in operating income calculated in Requirement 1.

1.

To determine

Compute the percent change in expected operating income.

Explanation

Operating Income:

The amount of earnings before charging any interest and tax is known as operating income. It is calculated by deducting the amount of expense by the sales revenue.

Use the following formula to calculate the percentage change in operating income:

Percentage change in operating income=(Degree of operating leverage×Percentage change in sales)

Substitute 1

2.

To determine

Compute the expected operating income for the next year.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How do unions affect the natural rate of unemployment?

Principles of Macroeconomics (MindTap Course List)

What is the difference between equity capital and debt capital?

Foundations of Business (MindTap Course List)

Explain the calculation of net sales and net purchases.

College Accounting (Book Only): A Career Approach

Explain the following statement: Our tax rates are progressive.

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)