If KFC has a 10.85% increase in sales, its EBIT will increase by __________. Assume that KFC produces 110,000 units and it has an annual interest expense of $3,150. A.12.79%.B.13.79%.C.18.85%.D.20.85%. PriceVariable costsFixed costsRevenueKorean Fried Chick (KFC)$4.5$2.1$40,000$400,000

Answered: If KFC has a 10.85% increase in sales,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

If KFC has a 10.85% increase in sales, its EBIT will increase by __________. Assume that KFC produces 110,000 units and it has an annual interest expense of $3,150.

12.79%.

13.79%.

18.85%.

20.85%.

Price
Variable costs
Fixed costs
Revenue
Korean Fried Chick (KFC)
$4.5
$2.1
$40,000
$400,000

Expert Solution

Concept

Degree of Operating leverage measure the percentage change in operating income (EBIT) for a given percentage change in sales.

A company having higher degree of operating leverage will have a higher percentage of increase in operating income (EBIT) for every 1% increase in sales.
Similarly, a company having higher degree of Operating leverage will have a higher percentage of decrease in Operating Income (EBIT) for every 1% decrease in sales.

Degree of Operating leverage can be calculated by using the following formula:

Degree of Operating Leverage = Contribution margin/ Operating Income