Carver Packing Company reports total contribution margin of $72,000 and pretax net income of $24,000 for the current month.In the next month,the company expects sales volume to increase by 8%.The degree of operating leverage and the expected percent change in income,respectively,are:
A)4.0 and 32%
B)0.33 and 8%
C)0.33 and 2.7%
D)3.0 and 8%
E)3.0 and 24%

Question

Quizplus · Accepted Answer

The degree of operating leverage is calculated as total contribution margin divided by pretax net income, which is $72,000 / $24,000 = 3.0. The expected percent change in income is the degree of operating leverage multiplied by the percent change in sales volume, which is 3.0 * 8% = 24%.

Carver Packing Company Reports Total Contribution Margin of $72,000 and Pretax