Sebree 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 5% increase in sales is closest to:

Question

Sebree 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 5% increase in sales is closest to:

Quizplus · Accepted Answer

Degree of operating leverage = Contribution margin ÷ Net operating income
= $112,000 ÷ $6,400 = 17.5
Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
= 17.5 × 5% = 87.5%

Sebree Corporation Has Provided the Following Contribution Format Income Statement