1) What is Hogue Sports Hut’s degree of operating leverage? 2) If Anna Hogue, th

Question

1) What is Hogue Sports Hut’s degree of operating leverage?

2) 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%.)

3) 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.)

4) 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.)

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 $963,720 Variable expenses 646,000 Contribution margin 317,720 Fixed expenses 195,520 Operating income $122,200

Explanation / Answer

1 Degree of operating leverage = Contribution margin / Operating income = 317720/122200= 2.6 2 Percent operating income increase = 5%*2.6= 13% 3 New operating income = 122200*1.13= $138086 4 New operating leverage = (317720*1.05)/138086= 2.42

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