Reference no: EM132878899

Problem - Operating Leverage - Mega Doors Company sells prehung doors to home builders. The doors are sold for P600 each. Variable costs are P420 per door, and fixed costs total P4,500,000 per year. The company is currently selling 30,000 doors per year.

Required -

1. Prepare a contribution format income statement for the company at the present level of sales and compute the degree of operating leverage.

2. Management is confident that the company can sell 37,500 doors next year (an increase of 7,500 doors, or 25%, over current sales). Compute the following:

a. The expected percentage increase in net operating income for next year.

b. The expected total peso net operating income for the next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.)