COV Assignment 4

The current sales of Trent, Inc., are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Inc.?

60% 2*30

Degree of operating Leverage

Contribution Margin / Net Operating Income

Margin of Safety

difference between your actual or expected profitability and the break even point Total budgeted (or actual sales)- Break even Sales

Selling Price 200 per unit Variable expenses 150 per unit Fixed expenses 1,000,000 Unit Sales 25,000 What is Ralph Corporation's margin of safety in dollars What is Ralph Corporation's margin of safety in percentage

1 million Total budget (25,000) - Break even (Fixed Expense/ CP= 20,000)= 5,000 * 200 1/5= 20%

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage?

3 300,000 100,000

Operating Leverage

Increases the operating income measures the variable cost and the fixed cost The measure of how sensitive net operating income is to a given percentage change in dollar sales is called _______.