Question

Cordell, Inc., has an operating leverage of 3. Sales are expected to increase by 9% next year. What is the expected change in operating income next year

Answer 1

Expected change is 27% in next year operating Income

Step-by-step explanation:

OI stands for the Operating Income, which is described as the accounting figure, that evaluates or determine the profit amount which is realized or gained from the operations of the business after subtracting the operating expenses like COGS (Cost of goods sold), wages and depreciation.

The operating income is expected to change next year is computed as;

Operating Income = Increase in Sales × Operating leverage

where

Increase in sales is 9%

Operating leverage is 3

Putting the values above:

OI = 9% × 3

OI = 27%