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Log co has an operating gearing ratio of 33.33%. it sales are currently $100m and its operating profit is $20m.
Operating gearing is calculated by dividing fixed cost by variable cost.
What will it’s operating profit be, if sales increases by 15%?There is no point in simply typing out a test question and expecting me to provide you with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer you are not clear about. Then I will explain.
You know what the profit is and so you can calculate the total cost.
You know that the gearing ratio is so you can calculate the split between the fixed and variable costs.
You can then calculate what the profit is for the increased sales.I assume that you have watched my free lectures on this?
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