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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