Calculate degree of operating leverage for each divisions

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Operating Leverage Problem

Consolidated Industries operates in five different industries and includes five separate divisions within its operating structure. Select information for each of these divisions follows.

Required: Calculate the degree of operating leverage for each of the divisions. Then, address the two questions that follow related to the impact on income for each division.


Natural Resources

Chemicals

Distribution

Consumer Goods

Finance

Sales

10,000,000

10,000,000

10,000,000

10,000,000

10,000,000

Variable expenses

5,000,000

5,000,000

5,000,000

5,000,000

5,000,000

Contribution margin

5,000,000

5,000,000

5,000,000

5,000,000

5,000,000

Fixed expenses

4,000,000

3,000,000

2,000,000

1,000,000

500,000

Net operating income

1,000,000

2,000,000

3,000,000

4,000,000

4,500,000

Degree of operating leverage

What would be the impact on income if sales increase 20%?

What would be the impact on  income if sales decrease 30%?

Reference no: EM131660798

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