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Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store Sales price per pair of sandals Variable expenses per pair of sandals Contribution margin per pair of sandals Fixed expenses per year: Building rental Equipment depreciation Selling Administrative Total fixed expenses Sales (4,000 pales) Variable expenses Contribution margin Fixed expenses Net operating income 5.30 15 $15 5. Refer to the original data. During the first year, the store sold only 4,000 pairs of sandals and reported the following operating results: $ 120,000 60,000 60,000 45,000 $ 15,000 $11,300 11,300 9,000 13,400 $ 45,000 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%?

Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store Sales price per pair of sandals Variable expenses per pair of sandals Contribution margin per pair of sandals Fixed expenses per year: Building rental Equipment depreciation Selling Administrative Total fixed expenses Sales (4,000 pales) Variable expenses Contribution margin Fixed expenses Net operating income 5.30 15 $15 5. Refer to the original data. During the first year, the store sold only 4,000 pairs of sandals and reported the following operating results: $ 120,000 60,000 60,000 45,000 $ 15,000 $11,300 11,300 9,000 13,400 $ 45,000 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%?

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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Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store Sales price per pair of sandals Variable expenses per pair of sandals Contribution margin per pair of sandals Fixed expenses per years Building rental Equipment depreciation Selling Administrative Total fixed expenses Sales (4,000 pales) Variable expenses Contribution margin 5. Refer to the original data. During the first year, the store sold only 4,000 pairs of sandals and reported the following operating results: Fixed expenses Net operating income $ 120,000 60,000 5.30 15 $15 60,000 45,000 $ 15,000 $11,300 11,300 9,000 13,400 $ 45,000 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%?
Transcribed Image Text:Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store Sales price per pair of sandals Variable expenses per pair of sandals Contribution margin per pair of sandals Fixed expenses per years Building rental Equipment depreciation Selling Administrative Total fixed expenses Sales (4,000 pales) Variable expenses Contribution margin 5. Refer to the original data. During the first year, the store sold only 4,000 pairs of sandals and reported the following operating results: Fixed expenses Net operating income $ 120,000 60,000 5.30 15 $15 60,000 45,000 $ 15,000 $11,300 11,300 9,000 13,400 $ 45,000 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%?
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