You are managing a division with a degree of operating leverage of 1.75. What will happen to the operating income if the number of units you sell decreases by 4.2%? A) 7.35% decrease B) 4.20% decrease C) 2.40% decrease D) 3.50% increase

You are managing a division with a degree of operating leverage of 1.75. What will happen to the operating income if the number of units you sell decreases by 4.2%? A) 7.35% decrease B) 4.20% decrease C) 2.40% decrease D) 3.50% increase

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 21E: Income statements for two different companies in the same industry are as follows: Required: 1....

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You are managing a division with a degree of operating leverage of 1.75. What
will happen to the operating income if the number of units you sell decreases
by 4.2%?
A) 7.35% decrease
B) 4.20% decrease
C) 2.40% decrease
D) 3.50% increase

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Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Quintexs profits is so much greater than that of Trimax.