A contribution income statement for the La Jolla Inn is shown below. (Ignore income taxes.)

Revenue..............................................................................$1,500,000

Less: Variable Expenses.................................................... 900,000

Contribution margin............................................................ $ 600,000

Less: Fixed expenses.......................................................... 450,000

Net Income......................................................................... $ 150,000

Required:

1. Show the hotel’s cost structure by indicating the percentage of the hotel’s revenue represented by each item on the income statement.

2. Suppose the hotel’s revenue declines by 20 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income.

3. What is the hotel’s operating leverage factor when revenue is $ 1,500,000?

4. Use the operating leverage factor to calculate the increase in net income resulting from a 25 percent increase in sales revenue.