Shambo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.

-Using the degree of operating leverage,the estimated percent increase in net operating income as the result of a 20% increase in sales is closest to:

Question

Shambo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.
 
-Using the degree of operating leverage,the estimated percent increase in net operating income as the result of a 20% increase in sales is closest to:

Quizplus · Accepted Answer

Degree of operating leverage = Contribution margin ÷ Net operating income
= $18,000 ÷ $4,800 = 3.8
Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
= 3.8 × 20% = 75%

Shambo Corporation Has Provided the Following Contribution Format Income Statement