A contribution margin statement for Pavlova Lodge is shown below. (Ignore income taxes.)

Required:
1. Show the hotel's cost structure by indicating the percentage of the hotel's revenue represented by each item on the contribution margin statement.
2. Suppose the hotel's revenue declines by 20 percent. Use the contribution margin ratio to calculate the resulting decrease in net profit.
3. What is the hotel's operating leverage factor when revenue is $1 500 000?
4. Use the operating leverage factor to calculate the increase in net profit resulting from a 25 percent increase in sales revenue.

Transcribed Image Text:

$1 500 000 Revenue Variable costs Contribution margin Fixed costs 900 000 $ 600 000 450 000 $ 150 000 Net profit