The magnitude of operating leverage for Forbes Corporation is 2.7 when sales are

Question

The magnitude of operating leverage for Forbes Corporation is 2.7 when sales are $190,000 and net income is $23,000. If sales increase by 5%, what is net income expected to be?

a. $26,105

b. $27,000

c. $24,150

d. $23,150

2.

For the last two years BRC Company had net income as follows:

  
What was the percentage change in income from 2012 to 2013? (Round your answer to 2 decimal places.)

a. 18.18% increase

b. 22.22% decrease

c. 22.22% increase

.d 18.18% decrease

Explanation / Answer

1)    a. $26,105 Degree of Operating leverage = Change in Operating income/Change in Sales 2.7 = change in operating income/5% change in operating income = 2.7*5% change in operating income = 13.50% Existing Net Income                23,000.00 Change in Net income = 23,000*13.50%                  3,105.00 Net income Expected                26,105.00 2) c. 22.22% increase Particulars 2012 2013 Change = 2013-2012 % change in NI WN Net Income                90,000.00           110,000.00                         20,000.00 22.22% 20,000/90,000*100

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