Question

(URGENT) Zainab Inc. reported sales of Rs.8,000,000 for the month and incurred variable expenses totaling Rs.5,700,000...

(URGENT) Zainab Inc. reported sales of Rs.8,000,000 for the month and incurred variable expenses totaling Rs.5,700,000 and fixed expenses totaling Rs.1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. What is the company's degree of operating leverage? [round your answer to 2 decimal places]                                                

What would be percentage change in net income if the sales increased by 10%?    

Homework Answers

Answer #1

1

Degree of Operating leverage = Contribution Margin / Net Operating income

Sales     8,000,000
Less : Variable Expense (5,700,000)
Contribution Margin     2,300,000
Less : Fixed Expense (1,440,000)
Net Operating Income        860,000

Then Degree of Leverage = 2300000 / 860000 = 2.67

The degree of leverage is 2.67. If Sales increased by 10%, there will be a 26.7% increase in changes in Net Income

10 x 2.67 = 26.74

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