A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue ..........................$500,000 Less:

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

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

Less: Variable expenses .................... 300,000

Contribution margin .....................$200.000

Less: Fixed expenses ..................... 150,000

Net income ......................... $ 50.000


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 15 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 $500,000?

4. Use the operating leverage factor to calculate the increase in net income resulting from a 20 percent increase in sales revenue.


Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Managerial Accounting

ISBN: 9780073022857

7th Edition

Authors: Ronald W Hilton

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