Asked by Blossom Child on Jul 15, 2024
Verified
Sales at East Corporation declined from $100,000 to $80,000, while net operating income declined by 300%.Given these data, the company must have had an operating leverage of:
A) 15
B) 2.7
C) 30
D) 12
Operating Leverage
A measure of how sensitive a company's operating income is to a change in its sales revenue, indicating the proportion of fixed to variable costs.
Net Operating Income
The profit a company generates from its operations, before taxes and interest, from its primary business activities.
Sales Decline
A decrease in the volume or value of sales over a specific period.
- Comprehend and compute the measure of operating leverage and its effect on net operating income.
Verified Answer
Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
-300% = Degree of operating leverage × -20%
Degree of operating leverage = 15
Learning Objectives
- Comprehend and compute the measure of operating leverage and its effect on net operating income.
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