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    Operating leverage and operating income

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    Exercise 6-8
    Per Unit Total
    Sales 100% $120,000
    Variable Costs 70% 84,000
    Contribution margin 30% 36,000
    Fixed expense 24,000
    Net operating income $12,000

    This time we are using the contribution margin percentage, rather than per unit.

    Req. 1--Show your computation of the degree of operating leverage here:

    Req 2--Show your computation of the operating income with a 10% increase in sales.

    Req 3--Use this contribution margin income statement. Change the sales and verify your
    operating income that you computed in req. 2.

    Per Unit Total
    Sales 100% $120,000
    Variable Costs 70% 84,000
    Contribution margin 30% 36,000
    Fixed expense 24,000
    Net operating income $12,000

    Exercise 6-11
    Show your computations of operating income and then adjust the contribution
    margin income statement on the right to verify your answer, as was shown in class.

    This is the original contribution margin income statement. You will be adjusting
    this statement for each condition, #1-#4

    Per Unit Total
    Sales 5 $150,000
    Variable Costs 3 90,000
    Contribution margin 2 60,000
    Fixed expense 50,000
    Net operating income $10,000

    No. of units 30,000

    Condition #1--number of units sold increases by 15%

    Show computations: Per Unit Total
    Sales 5 $150,000
    Variable Costs 3 90,000
    Contribution margin 2 60,000
    Fixed expense 50,000
    Net operating income $10,000

    No. of units 30,000

    Condition #2--The selling price decreases by 50 cents per unit, and the number o units sold
    increases by 20%

    Show computations: Per Unit Total
    Sales 5 $150,000
    Variable Costs 3 90,000
    Contribution margin 2 60,000
    Fixed expense 50,000
    Net operating income $10,000

    No. of units 30,000

    Condition #3--The selling price increases by 50 cents per unit, fixed expenses increase by
    $10,000 and the number of units sold decreases by 5%.

    Show computations: Per Unit Total
    Sales 5 $150,000
    Variable Costs 3 90,000
    Contribution margin 2 60,000
    Fixed expense 50,000
    Net operating income $10,000

    No. of units 30,000

    Condition #4--Variable expenses increase by 20 cents per unit, the selling price
    increases by 12% and the number of units sold decreases by 10%.

    Show computations: Per Unit Total
    Sales 5 $150,000
    Variable Costs 3 90,000
    Contribution margin 2 60,000
    Fixed expense 50,000
    Net operating income $10,000

    No. of units 30,000

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    https://brainmass.com/business/accounting/operating-leverage-operating-income-279354

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    Solution Summary

    The solution explains how to calculate the impact on operating income of operating leverage.

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