Question

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs?

A) A 25% increase in sales resulting in a 30% decrease in net operating income.
B) A 15% increase in sales resulting in a 15% increase in cost of goods sold.
C) A 25% increase in sales resulting in a 30% increase in net operating income.
D) A 25% increase in sales resulting in a 30% increase in fixed costs.

Answer 1

C) A 25% increase in sales resulting in a 30% increase in net operating income.