Park competes with splashy world by providing a variety of rides. storytime park sells tickets at $ 100 per person as a one-day entrance fee. variable costs are $ 20 per person, and fixed costs are $ 480 comma 000 per month. the breakeven number of tickets is 6 comma 000. if storytime park expects to sell 8 comma 000 tickets, compute the degree of operating leverage (round to two decimal places). estimate the operating income if sales increase by 10%.

A) degree of operating leverage 4

B) 224,000

Explanation:

A) degree of operating leverage:

contribution per ticket:

100 sales price - 20 variable cost = 80 contribution per ticket

8,000 x 80 = 640,000 total contribution

profit: 640,000 - 480,000 = 160,000

degree of operating leverage: 4

and increase in sales has a multipler effect of 4

B)

Operating income if sales increase by 10%:

8,000 tickets + 10% = 8,800 tickets

8,800 x 80 = 704,000 total contribution

fixed cost     (480,000)

income:         224,000

using degree of operating leverage:

160,000 x (1 + 0.1 x 4) = 160,000  x 1.4 = 224,000

the correct answer is - no.

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