Refer to the income statement given in the preceding exercise. Prepare a new contribution income statement for the La Jolla Inn in each of the following independent situations. (Ignore income taxes.)
In the preceding exercise
Revenue..............................................................................$1,500,000
Less: Variable Expenses.................................................... 900,000
Contribution margin............................................................ $ 600,000
Less: Fixed expenses.......................................................... 450,000
Net Income......................................................................... $ 150,000

1. The hotel’s volume of activity increases by 25 percent, and fixed expenses increase by 50 percent.
2. The ratio of variable expenses to revenue doubles. There is no change in the hotel’s volume of activity. Fixed expenses decline by $ 100,000.