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5. Refer to the original data. During the first year, the store sold only 3,000 pairs of sandals and reported the following operating results: Sales (3,000 pairs) Variable expenses Contribution margin Fixed expenses $ 120,000 48,000 72,000 60,000 $ 12,000 Net operating income a. What is the store's 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 unit sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase unit sales by 50%? a. Degree of operating leverage b. Expected percentage increase in net operating income

5. Refer to the original data. During the first year, the store sold only 3,000 pairs of sandals and reported the following operating results: Sales (3,000 pairs) Variable expenses Contribution margin Fixed expenses $ 120,000 48,000 72,000 60,000 $ 12,000 Net operating income a. What is the store's 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 unit sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase unit sales by 50%? a. Degree of operating leverage b. Expected percentage increase in net operating income

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Problem 5-30 (Static) Part 5** 5. Refer to the original data. During the first year, the store sold only 3,000 pairs of sandals and reported the following operating results: - Sales (3,000 pairs): $120,000 - Variable expenses: $48,000 - Contribution margin: $72,000 - Fixed expenses: $60,000 - Net operating income: $12,000 **Questions:** a. What is the store’s 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 unit sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase unit sales by 50%? --- **Answers:** a. Degree of operating leverage: [Blank for answer] b. Expected percentage increase in net operating income: [Blank for answer]% --- This section assesses the understanding of operating leverage and its impact on profitability with changes in sales volume.
Transcribed Image Text:**Problem 5-30 (Static) Part 5** 5. Refer to the original data. During the first year, the store sold only 3,000 pairs of sandals and reported the following operating results: - Sales (3,000 pairs): $120,000 - Variable expenses: $48,000 - Contribution margin: $72,000 - Fixed expenses: $60,000 - Net operating income: $12,000 **Questions:** a. What is the store’s 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 unit sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase unit sales by 50%? --- **Answers:** a. Degree of operating leverage: [Blank for answer] b. Expected percentage increase in net operating income: [Blank for answer]% --- This section assesses the understanding of operating leverage and its impact on profitability with changes in sales volume.
### Problem 5-30: Graphing; Incremental Analysis; Operating Leverage **Context:** Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, specializing in fashionable sandals. She aims to expand into a chain and has collected the following data for her new store: **Financial Information:** - **Sales price per pair of sandals:** $40 - **Variable expenses per pair of sandals:** $16 - **Contribution margin per pair of sandals:** $24 **Fixed Expenses Per Year:** - **Building rental:** $15,000 - **Equipment depreciation:** $7,000 - **Selling:** $18,000 - **Administrative:** $20,000 - **Total fixed expenses:** $60,000 --- ### Problem 5-30 (Static) Part 5 **Scenario:** During the first year, the store sold 3,000 pairs of sandals with the following results: - **Sales (3,000 pairs):** $120,000 - **Variable expenses:** $48,000 - **Contribution margin:** $72,000 - **Fixed expenses:** $60,000 - **Net operating income:** $12,000 **Questions:** a. **Degree of Operating Leverage:** What is the store's degree of operating leverage? b. **Sales and Operating Income Projection:** Angie is confident that with improved sales efforts and a creative advertising program, she can increase sales by 50% next year. If unit sales increase by 50%, what would be the expected percentage increase in net operating income? --- This section guides learners to analyze financial strategies in business operations, specifically examining the impact of sales changes on cost structure and profitability.
Transcribed Image Text:### Problem 5-30: Graphing; Incremental Analysis; Operating Leverage **Context:** Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, specializing in fashionable sandals. She aims to expand into a chain and has collected the following data for her new store: **Financial Information:** - **Sales price per pair of sandals:** $40 - **Variable expenses per pair of sandals:** $16 - **Contribution margin per pair of sandals:** $24 **Fixed Expenses Per Year:** - **Building rental:** $15,000 - **Equipment depreciation:** $7,000 - **Selling:** $18,000 - **Administrative:** $20,000 - **Total fixed expenses:** $60,000 --- ### Problem 5-30 (Static) Part 5 **Scenario:** During the first year, the store sold 3,000 pairs of sandals with the following results: - **Sales (3,000 pairs):** $120,000 - **Variable expenses:** $48,000 - **Contribution margin:** $72,000 - **Fixed expenses:** $60,000 - **Net operating income:** $12,000 **Questions:** a. **Degree of Operating Leverage:** What is the store's degree of operating leverage? b. **Sales and Operating Income Projection:** Angie is confident that with improved sales efforts and a creative advertising program, she can increase sales by 50% next year. If unit sales increase by 50%, what would be the expected percentage increase in net operating income? --- This section guides learners to analyze financial strategies in business operations, specifically examining the impact of sales changes on cost structure and profitability.
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