Refer to the income statement given in the preceding exercise. Prepare a new contribution income statement for the Nantucket Inn in each of the following independent situations. (Ignore income taxes.)
1. The hotel’s volume of activity increases by 20 percent, and fixed expenses increase by 40 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 $25,000.