Woods Company originally expected to earn operating income of $150,000 next year. Woods's degree of operating leverage is 2.4. Recently, Woods revised its plans and now expects to increase sales by 20% next year.
-Refer to the Figure.What is the percent change in operating income expected by Woods in the coming year?
A)8.3%
B)20.0%
C)30.0%
D)48.0%

Question

Quizplus · Accepted Answer

The formula for calculating the percent change in operating income when there is a change in sales is:

Percent change in operating income = Degree of operating leverage × Percent change in sales

Using the given information:
- Degree of operating leverage = 2.4
- Percent change in sales = 20%

Percent change in operating income = 2.4 × 20% = 48%

Therefore, the percent change in operating income expected by Woods in the coming year is 48%. The correct option is (D).

Woods Company Originally Expected to Earn Operating Income of $150,000