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Impact of Increased Sales on Operating Income Using the Degree of...

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Accounting

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Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage Head-First Company had planned to sell 5,000 bicycle helmets at $68 each in the coming year. Unit variable cost is $50 (Includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $40,500. The degree of operating leverage is 2.2. Now Head-First expects to increase sales by 10% next year. Required: 1. Calculate the percent change in operating income expected. 2. Calculate the operating income expected next year using the percent change in operating income calculated in Requirement 1

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