13An (Operating leverage) In light of a sales agreement that NVW just signed with a national chain of health food restaurants, NVW CFO, Jackie Cheng, is estimating that NVW???s sales in the next year will be 50,000 bottles at $30 per bottle. If the variable costs are expected to be 70% of sales, what is NVW???s expected degree of operating leverage?;This is what I have so far;Item current sales Level Forecast Sales Level, t+1;Sales 1,200,000 100% 1,500,000 100%;Less: total variable costs 840,000 70 1,050,000 70%;Revenue before fixed costs 360,000 30% 450,000 30%;Less: total fixed costs 360,000 360,000;EBIT 0 90,000;Increase of sales = 300,000
Degree of Operating Leverage
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