Question

Hogue Sports Hut provides individual instruction and coaching to children participating in the city’s baseball, softball, basketball, and soccer youth leagues. Last year’s results were as follows:

Sales revenue		$921,450
Variable expenses		647,750
Contribution margin		273,700
Fixed expenses		154,700
Operating income		$119,000

B) If Anna Hogue, the company’s president, is successful in increasing sales revenue by 5%, by what percent will the company’s operating income increase? (Round answer to 2 decimal place, e.g. 13.25%.)

C) After achieving the sales increase in part (b), what will be the company’s new operating income? (Round answer to 0 decimal places, e.g. 25,000.)

D) After achieving the sales increase in part (b), what will be the company’s new operating leverage? (Round answer to 2 decimal places, e.g. 0.38.)

Answer 1

		Total
	Sales revenue	$921,450
	Variable expenses	647,750
	Contribution margin	273,700
	Fixed expenses	154,700
	Operating income	$119,000
	Variable cost as % of revenue=	70.30%
Answer B
		Old	New
	Sales revenue	$921,450	$967,523	=921450*105%
	Variable expenses	647,750	680,138	=967523*70%
	Contribution margin	273,700	287,385	=revenue - variable cost
	Fixed expenses	154,700	154,700	same as old
	Operating income	$119,000	$132,685	=contribution margin - operating income
	Operating income %	12.91%	13.71%
	Operating income % increase = (132685-119000)/119000		11.50%
Answer C	new operating income =		$132,685
Answer D	new operating leverage =	Contribution margin / Net income
		=290257/132685
		2.17