Figure 4-6.Shorter Company had originally expected to earn operating income of $130,000 in the coming year. Shorter's degree of operating leverage is 2.4. Recently, Shorter revised its plans and now expects to increase sales by 20% next year.
-Refer to Figure 4-6. What is Shorter's revised expected operating income for the coming year?

Question

Quizplus · Accepted Answer

Shorter's revised expected operating income can be calculated using the formula:

Revised operating income = Original operating income × (1 + % increase in sales) × Degree of operating leverage

Where,
Original operating income = $130,000 
% increase in sales = 20% = 0.2
Degree of operating leverage = 2.4

Revised operating income = $130,000 × (1 + 0.2) × 2.4 = $192,400

Therefore, the revised expected operating income for the coming year is $192,400. The correct answer is (A).