Picasso"s Pantry is a chain of arts and crafts stores. Results for the most recent year are as follows:
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Sales
|
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$9,000,000
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Variable expenses
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$5,000,000
|
7,000,000
|
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Fixed expenses
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2,000,000
|
$2,000,000
|
|
Total expenses Operating income
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|
|
Required
- What is Picasso"s Pantry"s degree of operating leverage?
- If sales increase by 5%, what will the new operating income be?
- Managers are considering changing Picasso"s cost structure by offering employees a commission on sales rather than a fixed salary. What effect would such a change have on the firm"s operating leverage?