Question

Elite Company had originally expected to earn operating income of $140,000 in the coming year. Elite's degree of operating leverage is 2.6. Recently, Elite revised its plans and now expects to increase sales by 25% next year. What is the percent change in operating income expected by Elite in the coming year

Answer 1

65%

Step-by-step explanation:

The computation of the percentage change in operating income is shown below:

Degree of Operating leverage = Percentage change in operating income ÷ Percentage change in sales

2.6 = Percentage change in operating income ÷ 25%

So,

Percentage change in operating income is

= 2.6 × 25%

= 65%

We simply multiplied the degree of operating leverage with the percentage in sales so that the percentage change in operating income could come