Roxbury Manufacturing Company Assignment Example | Topics and Well Written Essays - 250 words

Roxbury Manufacturing smart set - Assignment ExampleCalculating the DOL for 2011 and 2012 to explain the 20% wane in profit from a 10% decline in sales The DOL is calculated as follows Degree of Leverage (DOL) = office margin/ Operating Income Assume that the first year is (2011) The DOL for 2011 = Contribution Margin/ Operating Income = 1,000, 000/500,000 = 2 In response to a 10% decline in sales, the operating income (profit) go away decline by 2*10% = 20% in 2011. Assume that the first year is (2012) The DOL for 2012 = Contribution Margin/ Operating Income = 900,000/ 400,000 = 2.25 In response to a 10% decline in sales, the operating income (profit) will decline by 2.25*10% = 22.5% in 2012. Now, assuming the following changes happen -Sales decline again by 10% The sales for the year 2013 would be 90/100*$ 3,600,000 = $ 3,240,000 -By cutting wastage, costs can be reduced by $120,000 The variable expenses for the year 2013 would be $ 2,700,000 - $120,000 = $2,580,000 The Revise d Income Statement, if the above changes are made will appear as shown below