Question 1 (B) In the most recent month, Sardella Corporation\'s total contribut

Question

Question 1 (B) In the most recent month, Sardella Corporation's total contribution margin was $46,200 and its net operating income $13,200. Required: Show all calculations and formulas, and present your work in good accounting form as illustrated in the lectures and your course text. (a) Compute the company's degree of operating leverage to two decimal places. (5 marks) (b) Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 10% increase in sales. (4 marks)

Explanation / Answer

a) Degree of operating leverage = Contribution/Net operating income = 46200/13200 = 3.50 b) % change in NOI = % change in sales*Degree of operating leverage = 10*3.5 = 35.00% (Answer)

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