# Question

Following is the income statement for Marsden Mufflers for the month of June 2016:

MARSDEN MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2016

Sales Revenue (280 units × $325) .......... $ 91,000

Variable Cost (280 units × $150) ......... 42,000

Contribution Margin ............... 49,000

Fixed Costs ................. 12,500

Operating income ............... $ 36,500

Requirements

1. Calculate the degree of operating leverage. (Round to four decimal places.)

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 30% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)

3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 30%.

MARSDEN MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2016

Sales Revenue (280 units × $325) .......... $ 91,000

Variable Cost (280 units × $150) ......... 42,000

Contribution Margin ............... 49,000

Fixed Costs ................. 12,500

Operating income ............... $ 36,500

Requirements

1. Calculate the degree of operating leverage. (Round to four decimal places.)

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 30% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)

3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 30%.

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