Asked by Brigid Ripley on Jun 29, 2024
Verified
Lubke Corporation's contribution format income statement for the most recent month follows: 
Required:
a.Compute the degree of operating leverage to two decimal places.
b.Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales.
Operating Leverage
A measure of how sensitive a company's operating income is to changes in sales volume, indicating the degree of fixed versus variable costs.
Percentage Change
A mathematical calculation that depicts the degree of change over time, usually expressed as a percentage.
- Calculate and interpret the degree of operating leverage.
- Use the operating leverage to estimate the effect of sales changes on net operating income.
Verified Answer
ZK
Zybrea KnightJul 03, 2024
Final Answer :
a.Degree of operating leverage = Contribution margin ÷ Net operating income
= $269,500 ÷ $27,800 = 9.69
b.Percent increase in net operating income = Percent increase in sales × Degree of operating leverage
= 3% × 9.69 = 29.07%
= $269,500 ÷ $27,800 = 9.69
b.Percent increase in net operating income = Percent increase in sales × Degree of operating leverage
= 3% × 9.69 = 29.07%
Learning Objectives
- Calculate and interpret the degree of operating leverage.
- Use the operating leverage to estimate the effect of sales changes on net operating income.
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