In the Most Recent Month, Faulkner Corporation's Total Contribution Margin

question 93

Essay

In the most recent month, Faulkner Corporation's total contribution margin was $208,000 and its operating profit $39,400.
Required:
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in operating profit that should result from a 1% increase in sales.

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Definitions:

Depreciable Asset

A Depreciable Asset is a tangible asset subject to depreciation, which allows for the allocation of its cost over its useful life.

Capital Expenditure

Money spent by a business to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenues, indicating the company's financial health over a specific period.

Preparation Costs

Expenses incurred in getting assets or products ready for use or sale.