LO 3.5Wallace Industries has total contribution margin of $58,560 and net income of $24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What are the degree of operating leverage and the expected percent change in income for Wallace Industries?

0.42 and 2.2%

0.42 and 5%

2.4 and 12%

2.5 and 13%

Question

Business

Orlando Burke

3 September, 01:04

LO 3.5Wallace Industries has total contribution margin of $58,560 and net income of $24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What are the degree of operating leverage and the expected percent change in income for Wallace Industries?

0.42 and 2.2%

0.42 and 5%

2.4 and 12%

2.5 and 13%

+4

Answers (1)

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Katherine · Answer 1

2.4 and 12%

Explanation:

We have these dа ta:

-contribution margin (CM) : $58,560

-net income (NI) : $24,400

-expected sales increase (ESI) : 5%

-the degree of operating leverage (DoL) : ?

-expected percent change in income (ECI) : ?

DoL=CM/NI = 58560/24400 = 2.4

The change in sales will have effect on the contribution margin, revenues and etc. But we have summarized formula to find the expected change on net income:

ECI = ESI * DoL = 5 * 2.4 = 12%

The expected net income increase will be 12 %