EXERCISE 6-16 (15 MINUTES)

2. a. Sales of 18,000 games would represent a 20% increase over last

year’s sales. Since the degree of operating leverage is 7.5, net oper-

ating income should increase by 7.5 times as much, or by 150% (7.5

× 20%).

b. The expected total dollar amount of net operating income for next

year would be:

Last year’s net operating income ... $28,000

Expected increase in net operating income next

year (150% × $28,000) ... 42,000

Total expected net operating income ... $70,000