Final answer:
The degree of operating leverage is a measure of how sensitive a company's operating income is to a change in sales. Using the provided data, the degree of operating leverage for the scenario is 16.5. However, without further information on how sales might change, it is impossible to determine whether the operating leverage will increase, decrease, or remain the same.
Step-by-step explanation:
The question relates to the concept of operating leverage, which measures how a company's operating income changes with a change in sales volume. The degree of operating leverage can be expressed as the percentage change in operating income divided by the percentage change in sales. Using the given figures, we can calculate the operating leverage at a sales level of $45,000, variable costs of $12,000, and fixed costs of $31,000.
For this scenario, we use the formula:
Degree of Operating Leverage = Contribution Margin / Operating Income
Where Contribution Margin = Sales - Variable Costs.
Operating Income (or EBIT) = Sales - Variable Costs - Fixed Costs.
So, the Contribution Margin is $45,000 - $12,000 = $33,000 and the Operating Income is $45,000 - $12,000 - $31,000 = $2,000. Plugging these into the formula gives:
Degree of Operating Leverage = $33,000 / $2,000 = 16.5
This means the operating income will change by 16.5 times any given percentage change in sales. Without information on how sales are expected to change, we cannot determine if the degree of operating leverage will increase, decrease or remain the same. Therefore, the correct answer to the question provided is:
(d) Be impossible to calculate