A Company with a Degree of Operating Leverage of 4

question 37

True/False

A company with a degree of operating leverage of 4 would expect net income to increase by 200% if sales increased from $100,000 to $150,000.

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Definitions:

Percent of Sales Method

A financial planning tool used to forecast future revenues, expenses, or balance sheet figures as a percentage of sales.

Uncollectible Accounts Receivable

Accounts receivable that are considered to be uncollectible due to the inability of the customers to pay.

Journal Entries

Recorded transactions in the accounting system, documenting financial changes in accounts.

Percent of Sales

Percent of sales is a financial analysis tool that helps in estimating how certain accounts, like revenue and expenses, will vary in proportion to changes in sales.