The magnitude of operating leverage for Perkins Corporation is 4.5 when sales are $100,000.If sales increase to $110,000,profits would be expected to increase by what percent?
A) 4.5%
B) 14.5%
C) 45%
D) 10%

Question

Quizplus · Accepted Answer

Operating leverage measures the percentage change in operating income (or profits) for a percentage change in sales. With an operating leverage of 4.5, a 10% increase in sales (from $100,000 to $110,000) would lead to a 45% increase in profits (4.5 times the sales increase percentage).

The Magnitude of Operating Leverage for Perkins Corporation Is 4