Fixed costs of $300,000 and profit of $150,000. if sales increase 20% The profits increase 60%.
How much will profits increase?
$300,000 plus $150,000 equals $450,000 in contribution margin.
$300,000 + $150,000 = $450,000.
Operating leverage is calculated as follows:
$450,000/$150,000
= 3. 20% x 3 = 60%
The profits increase 60%.
- Four important elements can contribute to profitability. Costs are coming down, turnover is going up, production is going up, and efficiency is going up. You can also develop new goods or services or grow into new market segments.
- By increasing revenues, such as through the sale of additional products or services or by raising pricing, businesses can raise their net margin. By cutting costs, businesses can raise their net margin.
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