"Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2012 level of $1,500,000. Refer to Genatron’s 2012 income statement below, where the income before interest and taxes is $247,000 (EBT of $190,000 plus Interest of $57,000). Assume that the cost of goods sold are variable expenses and that the other operating expenses are fixed.

Question

"Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2012 level of $1,500,000. Refer to Genatron’s 2012 income statement below, where the income before interest and taxes is $247,000 (EBT of $190,000 plus Interest of $57,000). Assume that the cost of goods sold are variable expenses and that the other operating expenses are fixed.
"				
Calculate the expected amount of income before interest and taxes for both a 10 percent decrease and a 10 percent increase in net sales for next year.			
Percent Change			
Current	2012	– 10%	10%
Net sales	 1,500,000 		
Cost of goods sold (variable expenses)			
	 (900,000)		
Gross profit			
General & administrative	 (150,000)		
Marketing	 (15,000)		
Depreciation	 (3,000)		
Income before interest & taxes	 247,000

Determine the percentage change in income before interest and taxes given your calculations in Part a, and determine the degree of operating leverage.			
Percent change in operating income 
Degree of operating leverage