Question

Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is a.expected to increase by 4% b.expected to increase by 48% c.unaffected d.expected to increase by 3%

Answer 1

48%

Step-by-step explanation:

Given that, Forde Co. has an

Operating leverage = 4

Sales are expected to increase by 12% next year.

Hence,

Increase in Operating Income:

= Increase in Sales × Operating Leverage of a company

= 12% × 4

= 0.12 × 4

= 0.48 or 48 percent

Therefore, the operating income is expected to increase by 48%.