Question

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales	$	105,000
Variable expenses		73,500
Contribution margin		31,500
Fixed expenses		27,720
Net operating income	$	3,780

13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

Operating leverage =Contribution margin/Net operating income

Operating leverage =$31500/3780

Operating leverage = 8.33

Another formula for calculating operating leverage is

Degree of operating leverage = change in operating income / changes in sales

.

We know percentage change in sales and we know operating leverage so we can easily find change in income by using above formula

change in operating income= Degree of operating leverage x Change in sales

change in operating income= 8.33 x 5

change in operating income= 41.65 % or 42%

Answer--- Estimated percentage increase in Profit= 41.65% or 42%