Kulwicki Corporation wants to determine the effect of an expansion of its sales on its operating income (EBIT).The firm's current DOL is 2.5.It projects new unit sales to be 170,000,an increase of 45,000 over last year's level of 125,000 units.Last year's EBIT was $60,000.Based on a DOL of 2.5,what is this year's projected EBIT with the increase in sales?
A) $60,000
B) $175,000
C) $100,000
D) $90,000
E) $114,000

Question

Quizplus · Accepted Answer

DOL = percentage change in EBIT / percentage change in sales

2.5 = ?EBIT / (45,000 / 125,000)

Solving for ?EBIT, we get:

?EBIT = 2.5 x (45,000 / 125,000) x $60,000

?EBIT = $114,000

Therefore, the projected EBIT with the increase in sales is $114,000, which is option E.

Kulwicki Corporation Wants to Determine the Effect of an Expansion