Question

Brackets, Inc. currently anticipates that if they had a 11 percent increase in​ sales, net operating profits would increase by 58 percent. If​ Brackets' NOI is ​$15.8 ​million, what level of fixed costs do they​ have?

Answer 1

Answer:

$67.466 million

Explanation:

Given that,

Percentage increase in sales = 11%

Net operating profits increase by = 58%

Net operating income = $15.8 million

Degree of Operating Leverage:

= Change in Operating Income ÷ Change in Sale

= 58 ÷ 11

= 5.27

Degree of Operating Leverage = Contribution Margin ÷ Net Operating Income

Contribution Margin = Degree of Operating Leverage × Net Operating Income

                                  = 5.27 × $15.8 million

                                  = $83.266 million

Fixed Cost:

= Contribution Margin - Net Operating Income

= $83.266 million - $15.8 million

= $67.466 million