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A Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for 20 per unit. Variable costs are 8 per unit, and fixed costs total 180,000 per year. Answer the following independent questions:
(d) Assume that the operating results for last year were: (i). Compute the degree of operating leverage at the current level of sales. (ii). The president expects sales to increase by 20 % next year. By what percentage should net operating income increase?

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abhaydwive123

Calculation of degree of operating leverage

Degree of operating leverage =$240,000 - $60,000 =4

Thus, the degree of operating leverage is 4.

Degree of operating leverage is calculated as contribution margin divided by operating income. Contribution margin is $240,000 and operating income is $60,000 and so the degree of operating leverage is $240,000 divided by $60,000 which gives 4 as degree of operating leverage.

The operating leverage formula is used to calculate a company's break-even point, helping to set a reasonable selling price to cover all costs and make a profit. This gives you insight into how well your company is using fixed-cost items such as inventory and machinery to make a profit. The more profit a company can extract from the same amount of fixed assets, the higher its operational leverage.

Learn more about operating leverage at

https://brainly.com/question/24278932

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