Thursday 1 May 2014

Problem 6-211 [LO8] Langin Corporation has provided its contribution format income statement for June. Sales $ 783,160 Variable expenses 427,000 ________________________________________ ________________________________________ Contribution margin 356,160 Fixed expenses 271,360 ________________________________________ ________________________________________ Net operating income $ 84,800 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Required: a. Compute the degree of operating leverage to two decimal places. Degree of operating leverage b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 15% increase in sales. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Percentage change in net operating income % Explanation: a. Degree of operating leverage = Contribution margin/Net operating income = $356,160/$84,800 = 4.20 b. Percent increase in net operating income = Percent increase in sales × Degree of operating leverage = 15% × 4.20 = 63.00%



Problem 6-211 [LO8]
Langin Corporation has provided its contribution format income statement for June.
 



  Sales
$
783,160  
  Variable expenses

427,000  





  Contribution margin

356,160  
  Fixed expenses

271,360  





  Net operating income
$
84,800  











 
Required:
a.
Compute the degree of operating leverage to two decimal places.
 
  Degree of operating leverage

 
b.
Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 15% increase in sales. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
 
  Percentage change in net operating income
%  


Explanation:
a.
Degree of operating leverage = Contribution margin/Net operating income = $356,160/$84,800 = 4.20

b.
Percent increase in net operating income = Percent increase in sales × Degree of operating leverage = 15% × 4.20 = 63.00%

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