Mcquage Corporation Has Provided Its Contribution Format Income Statement for July

question 2

Essay

Mcquage Corporation has provided its contribution format income statement for July.
Required:
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 19% increase in sales.

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Definitions:

Implicit Marginal Tax Rate

The effective additional tax rate imposed on an individual or entity's incremental income, typically factoring in deductions, exemptions, and benefits phase-outs.

Government Benefits

Entail various forms of financial aid and services provided by the government to individuals and organizations, such as healthcare, education, and social security.

Tax Rate

The tax rate is the percentage at which an individual or corporation is taxed by the government on income, transactions, or property.

Implicit Marginal Tax Rate

Represents the rate at which an increase in income results in an increase in taxes plus the loss of government benefits, even if there's no explicit change in the tax bracket.