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Hogue Sports Hut provides individual instruction and coaching to children participating in the city’s baseball, softball, basketball,...

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Accounting

Hogue Sports Hut provides individual instruction and coaching tochildren participating in the city’s baseball, softball,basketball, and soccer youth leagues. Last year’s results were asfollows:

Sales revenue$921,450
Variable expenses647,750
Contribution margin273,700
Fixed expenses154,700
Operating income

$119,000

B) If Anna Hogue, the company’s president, is successful inincreasing sales revenue by 5%, by what percent will the company’soperating income increase? (Round answer to 2 decimalplace, e.g. 13.25%.)

C) After achieving the sales increase in part (b), what will bethe company’s new operating income? (Round answer to 0decimal places, e.g. 25,000.)

D) After achieving the sales increasein part (b), what will be the company’s new operating leverage?(Round answer to 2 decimal places, e.g.0.38.)

Answer & Explanation Solved by verified expert
3.5 Ratings (636 Votes)

Total
Sales revenue $921,450
Variable expenses 647,750
Contribution margin 273,700
Fixed expenses 154,700
Operating income $119,000
Variable cost as % of revenue= 70.30%
Answer B
Old New
Sales revenue $921,450 $967,523 =921450*105%
Variable expenses 647,750 680,138 =967523*70%
Contribution margin 273,700 287,385 =revenue - variable cost
Fixed expenses 154,700 154,700 same as old
Operating income $119,000 $132,685 =contribution margin - operating income
Operating income % 12.91% 13.71%
Operating income % increase = (132685-119000)/119000 11.50%
Answer C new operating income = $132,685
Answer D new operating leverage = Contribution margin / Net income
=290257/132685
          2.17

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