Highland Manufacturing prepared the following contribution format income statement based on a sales volume of 2,500 units (the relevant range of production is 1,500 units to 3,500 units): Amount $85,000 Sales Variable expenses $42,500 Contribution margin $42,500 Fixed expenses $25,000 Net operating income $17,500 Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $25,000 and the total fixed expenses are $42,500. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percentage increase in net operating income of a 5% increase in sales?

Highland Manufacturing prepared the following contribution format income statement based on a sales volume of 2,500 units (the relevant range of production is 1,500 units to 3,500 units): Amount $85,000 Sales Variable expenses $42,500 Contribution margin $42,500 Fixed expenses $25,000 Net operating income $17,500 Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $25,000 and the total fixed expenses are $42,500. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percentage increase in net operating income of a 5% increase in sales?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9E: The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the...

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