Total Leverage and Sales Growth Implications

Very Hard Measures Of Leverage Total Leverage

A company, XYZ Corp, has a fixed cost of $100,000 and generates sales revenue of $500,000. The variable cost per unit is $25, and the company sells 10,000 units. Calculate the Total Leverage for XYZ Corp, and determine how an increase in sales volume will affect its operating income.

Which of the following statements accurately describes the Total Leverage of XYZ Corp and its implications for sales growth?

Total Leverage is 4, indicating that a 10% increase in sales volume will result in a 40% increase in operating income.

Total Leverage is 4, indicating that a 10% increase in sales volume will result in a 10% increase in operating income.

Total Leverage is 2, indicating that a 10% increase in sales volume will result in a 20% increase in operating income.

Hint

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