Question
In: Accounting
Revenue $ 1,500,000 Less: Variable expenses 975,000 Contribution margin $ 525,000 Less: Fixed expenses 420,000 Net...
| Revenue | $ | 1,500,000 | |
| Less: Variable expenses | 975,000 | ||
| Contribution margin | $ | 525,000 | |
| Less: Fixed expenses | 420,000 | ||
| Net income | $ | 105,000 | |
4.Use the operating leverage factor to calculate the increase in net income resulting from a 25 percent increase in sales revenue.
Solutions
Expert Solution
Operating leverage = (Revenue – Variable expenses) / Net income
= (1,500,000 – 975,000) / 105,000
= 525,000 / 105,000
= 5
Now, given there is a 25% increase in revenue.
New revenue = 1,500,000 × (1 + 0.25)
= 1,500,000 × 1.25
= 1,875,000
Operating leverage = (Revenue – Variable expenses) / Net income
5 = (1,875,000 – 975,000) / Net income
5 = 900,000 / Net income
Net income = 900,000 / 5
= 180,000
Increase in net income = 180,000 – 105,000
= $ 75,000 (Answer)
ekkarill92 answered 1 year agoRelated Solutions
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