Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Green Valley Corp.'s contribution format income statement for the most recent month follows:

Sales

$

506,000

Variable expenses

 

236,500

Contribution margin

 

269,500

Fixed expenses

 

241,700

Net operating income

$

27,800

 

Required:

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

b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales.

c. If Green Valley’s competitor Black Mountain Inc. has a degree of operating leverage as 8, which company has the higher operating risk? 

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