Question:
Mary Smith sells gourmet chocolate chip cookies. The results of her last month of operations are as follows:
|
Sales revenue
|
$50,000
|
|
Cost of goods sold (all variable)
|
26,000
|
|
Gross margin
|
24,000
|
|
Selling expenses (20% variable)
|
8,000
|
|
Administrative expenses (60% variable)
|
12,000
|
|
Operating income
|
$ 4,000
|
Required
1. What is Mary"s degree of operating leverage?
2. If Mary can increase sales by 10%, by how much will her operating income increase?