Bell Brothers has R3,000,000 in sales.Its fixed costs are estimated to be R100,000, and its variable costs are equal to fifty cents for every rand of sales.The company has R1,000,000 in debt outstanding at a before-tax cost of 10 percent.If Bell Brothers' sales were to increase by 20 percent, how much of a percentage increase would you expect in the company's net income?

Question

Quizplus · Accepted Answer

The percentage increase in net income is calculated by finding the degree of operating leverage (DOL) and multiplying it by the percentage increase in sales. The DOL is calculated as (Sales - Variable Costs) / (Sales - Variable Costs - Fixed Costs). With a 20% increase in sales, the net income increase is approximately 23.08%.

Bell Brothers Has R3,000,000 in Sales