Story Park competes with Water World by providing a variety of rides. Story sell

Question

Story Park competes with Water World by providing a variety of rides. Story sells tickets at $ 90 per person as a one-day entrance fee. Variable costs are $ 18 per person, and fixed costs are $ 464,400 per month. The breakeven number of tickets is 6,450. If Story Park expects to sell 6,600 tickets, compute the operating leverage. Estimate the operating income if sales increase by 10 %.

Compute the degree of operating leverage for Story Park.

Contribution margin/ operating income = degree of operating leverage

Explanation / Answer

Contribution margin income statement :

Degree of operating leverage = Contribution margin/ operating income

= 475200/10800

Degree of operating leverage = 44

If sales increase by 10% then operating income increase by 10*44 = 440%

Sales (6600*90) 594000 Variable cost (6600*18) (118800) Contribution margin 475200 Fixed cost (464400) Operating income 10800

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