US CMA Part 2 · Chapter 1 · Question 14 of 15
Lambert Products has sales of $1,000,000, variable costs of $600,000 and fixed operating costs of $250,000. If sales increase by 6% with no change in cost behavior, by what percentage will operating income increase?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 16.0%
Explanation
Contribution margin = $1,000,000 - $600,000 = $400,000; operating income = $400,000 - $250,000 = $150,000. Degree of operating leverage = $400,000 / $150,000 = 2.667. Change in operating income = 2.667 x 6% = 16.0%. Check: new CM = $424,000, new operating income = $174,000, an increase of $24,000 / $150,000 = 16.0%.
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