Following is the income statement for Mueller Mufflers for the month of June 2013:

MUELLER MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2013

Sales Revenue (200 units × $ 175) ......... $ 35,000

Variable Costs (200 units × $ 75) .......... 15,000

Contribution Margin ............... 20,000

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

Operating Income ................ $ 7,500

Requirements

1. Calculate the degree of operating leverage.

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 15% (assuming no change in sales price per unit).

3. Verify your answer in Requirement 2 by preparing a Contribution Margin income statement with the total sales increase of 15%.