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Category > Accounting Posted 30 Jul 2017 My Price 8.00

magnitude of operating leverage.

 

Exercise 11-14     Assessing the magnitude of operating leverage

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

 

 

 

 

Sales revenue (400 units 3 $25)

$10,000

Variable cost (400 units 3 $10)

 (4,000)

Contribution margin

6,000

Fixed costs

 (3,500)

Net income

$2,500

 

 

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 Stuart 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 per- cent 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
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Status NEW Posted 30 Jul 2017 10:07 PM My Price 8.00

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