Question 1
Patton Company's selling price is $100, variable costs are 60% of sales, and fixed costs total $60,000.
Required:
a. | At a $400,000 sales level, what is Patton's degree of operating leverage? |
b. | If sales volume increases by 10%, what will be the amount of increase in operating |
income?
Question 2
Colorado Furniture Company manufactures natural weathered reclaimed wood furniture. The company produces two sizes of beds. Data for the company's activity during a typical period are presented below:
| Queen | King |
Units sold | 100 | 300 |
Sales price | $1,800 | $2,000 |
Variable cost per unit | $1,080 | $1,100 |
The company incurs $300,000 in fixed costs during the year. Assuming the sales mix is constant, what will Colorado's operating income be if sales volume increases by 10%?