Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 22 Jul 2017 My Price 7.00

magnitude of operating leverage

Assessing the magnitude of operating leverage

The following income statement applies to Cohen Company for the current year.

Sales revenue (350 units x $25)

$8,750

Variable cost (350 units x $10)

3,500

Contribution margin Fixed costs

5,250 (3,500)

Net income

$1,750

Required

a. Use the contribution margin approach to calculate the magnitude of operating leverage.

b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Cohen Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected.

c. Verify your answer to Requirement b by constructing an income statement based on a 10 percent increase in sales revenue. The sales price is not affected. Calculate the percentage change in net income for the two income statements.

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Maurice Tutor
(5)
Status NEW Posted 22 Jul 2017 08:07 PM My Price 7.00

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