Betty DeRose, Inc. prepared the following projected income statement information for 2023: Contribution margin .............. $935,000...

Betty DeRose, Inc. prepared the following projected income statement information
for 2023:

Contribution margin .............. $935,000
Fixed costs ......................  825,000
Net income .......................  110,000

Assume that actual sales in 2023 were 22% higher than projected.

Calculate the net income earned by Betty DeRose, Inc. for 2023.

Expert Solution

$ 3,15,700

Working;

a.	Degree of operating leverage	=	Contribution Margin/ Net Income
		=	$ 9,35,000	/	$ 1,10,000
		=	8.50

b.	Increase in Net Income	=	Increase in sales x Degree of operating leverage
		=	22%	x 8.50
		=	1.87

	Degree of operating leverage is a measure to identiry how net income would change if there is % changes in sales.


c.	Net Income earned by Betty DeRose Inc.	=	Projected Income + Increase in Net Income
		=	$ 1,10,000	+	(110000*1.87)
		=	$ 3,15,700

ekkarill92 answered 2 years ago

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