# Question: Following is the income statement for Marsden Mufflers for the

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%.

**View Solution:**## Answer to relevant Questions

Stewart’s Scooters plans to sell a standard scooter for $120 and a chrome scooter for $160. Stewart’s purchases the standard scooter for $30 and the chrome scooter for $40. Stewart’s expects to sell one standard ...Allen Company sells flags with team logos. Allen has fixed costs of $583,200 per year plus variable costs of $4.80 per flag. Each flag sells for $12.00. Requirements 1. Use the equation approach to compute the number of ...Compute the missing amounts for the following table. Refer to Exercise E21-15. In E. RefreshAde produced 15,000 cases of powdered drink mix and sold 12,000 cases in April 2016. The sales price was $30, variable costs were $13 per case ($10 manufacturing and $3 selling and ...Game Play manufactures video games that it sells for $39 each. The company uses a fixed manufacturing overhead allocation rate of $6 per game. Assume all costs and production levels are exactly as planned. The following data ...Post your question