sells authentic Amish quilts on her website. Suppose expects to sell quilts during the coming year. Her average sales price per quilt is ​, and her average cost per quilt is . Her fixed expenses total . Compute ​'s operating leverage factor at an expected sales level of quilts. If sales volume increases ​%, by what percentage will her operating income​ change? Prove your answer by calculating operating income at a sales volume of and at a sales volume of .

1. Operating leverage = Contribution margin / Operating income

Contribution margin = (Selling price - average cost) * no. of units sold

= (375 - 175 ) * 2,000 quilts

= $400,000

Operating income = Contribution margin - Fixed expenses

= 400,000 - 200,000

= $200,000

Operating leverage = 400,000/ 200,000

= 2

2. Sales increases by 20%:

Operating income = 20% * 2

= 40%

3. At sales volume of 2,000 quilts, operating income was $200,000

Sales volume of 2,400 quilts:

Operating income = (375 - 175 ) * 2,400 quilts - 200,000

= 480,000 - 200,000

= $280,000

Percentage increase:

= (New income - old income) / old income

= (280,000 - 200,000) / 200,000

= 40%

D are adjusted to what they would have been had the new method been used in previous years.

Explanation: Retrospective approach means that you are applying the change in principle to the financial results of previous periods, as if the new principle had always been in use. All presented financial statements are adjusted to reflect the change to the new accounting principle.