Question

Return to Blackboard PLUS DITI Davis, Managerial Accounting, Je Help System Announcements SOURCES CALCULATOR Exercise 3-16 Mary Smith sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $46,500 Cost of goods sold (all variable) 26,500 Gross margin 20,000 Selling expenses (20% variable) 7,700 Administrative expenses (60% variable) 11,000 Operating income $1,300 Study What is Mary's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage If Mary can increase sales by 15%, by how much will her operating income increase? (Round answer to decimal places, e.g. 5,275.) Increase in operating income $ Click if you would like to show Work for this question: Open Show Work Question Attempts: 0 of 1 used SAVE FOR

Answer 1

Contribution margin income statement

Sales	46500
Less: Variable cost
Cost of goods sold	26500
Selling expense (7700*20%)	1540
Administrative expense (11000*60%)	6600
Contribution margin	11860
Fixed selling expense	6160
Fixed administrative expense	4400
Net income	1300

a) Degree of operating leverage = Contribution margin/Net income = 11860/1300 = 9.12

b) Net income increase by = 9.12*15 = 136.8

Increase in net income = 1300*136.80% = 1778