Question

The following budgeted income statement applies to Salter Company:
Income Statement
Sales revenue (1,000 units 3 $170) ...... $ 170,000
Variable cost (1,000 units 3 $90) ...... (90,000)
Contribution margin ............. 80,000
Fixed costs ............... (64,000)
Net income ............... $ 16,000
Required
a. Use the contribution margin approach to calculate the magnitude of operating leverage.
b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Salter Company will earn if sales volume increases by 10 percent. Assume the sales price per unit remains unchanged at $170.
c. Verify your answer to Requirement b by constructing an alternative income statement based on a 10 percent increase in sales volume. The sales price per unit remains unchanged at $170.
Calculate the percentage change in net income for the two income statements.



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  • CreatedFebruary 07, 2014
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