Ostler Company's operating income last year was $10,000,and its contribution margin was $50,000.Using the operating leverage concept,if the company's sales increase next year by 8%,by what percentage can its operating income expect to increase?

Question

Quizplus · Accepted Answer

Operating leverage is calculated as Contribution Margin / Operating Income. For Ostler Company, it is $50,000 / $10,000 = 5. An 8% increase in sales would lead to an 8% * 5 = 40% increase in operating income.

Ostler Company's Operating Income Last Year Was $10,000,and Its Contribution