Bendel Inc.has an operating leverage of 7.3.If the company's sales increase by 3%, its net operating income should increase by about:

A) 243.3%
B) 7.3%
C) 21.9%
D) 3.0%

Operating leverage = contribution margin / net operating income
7.3 = CM / NOI
Therefore, CM = 7.3 x NOI

If sales increase by 3%, then the new contribution margin (CM') would be:
CM' = CM + (0.03 x sales)

And the new net operating income (NOI') would be:
NOI' = sales - variable costs - fixed costs
NOI' = sales x (1 - variable cost ratio) - fixed costs

Using the operating leverage equation with the new values:
7.3 = CM' / NOI'
7.3 = (CM + 0.03s) / (s(1 - VC%) - FC)
7.3 = (7.3NOI + 0.03s) / (s(1 - VC%) - FC)
Solving for NOI':
NOI' = (s - VC%s - FC) x 7.3 / (1 - 0.03s / CM)

Plugging in the given values:
NOI' = (1.03s - VC%s - FC) x 7.3 / (1 - 0.03s / CM)

Since we don't know the values of s, VC%, CM, or FC, we can't calculate the exact increase in net operating income. However, we can see that it will be greater than 3% (option D) due to the operating leverage of 7.3. The correct answer is therefore option C (21.9%).

Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
= 7.3 × 3% = 21.9%