Compute the degree of operating leverage at current level

Assignment Help Accounting Basics

Reference no: EM131983582

Problem

Stratford Company distributes a lightweight lawn chair that sells for $15.00 per unit. Variable costs are $6.00 per unit and fixed costs total $180,000 annually.

Required:

Answer the following independent questions

1. What is the product's CM ratio?

2. Use the CM ration to determine the break-even point in sales dollars.

3. The company estimates that sales will increase by $45,000 during the coming year due to increased demand. By how much should net operating income increase?

Assume that the following results for last year were as follows:

Sales $360,000

Variable costs . $144,000

Contribution margin . $216,000

Fixed expenses $180,000

Net Operating income . $36,000

a. Compute the degree of operating leverage at the current level of sales.

b. The president expects sales to increase by 15% next year. By how much should net operating income increase?

Reference no: EM131983582

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