Exercise 18-25 (Algo) Computing and analyzing operating leverage LO A2 Hudson Company reports the following contribution margin income statement. HUDSON COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales (10,500 units at $225 each) $ 2,362,500 Variable costs (10,500 units at $180 each) 1,890,000 Contribution margin $ 472,500 Fixed costs 315,000 Income $ 157,500

1. Compute the companys degree of operating leverage.

2. If sales decrease by 4% in the next year, what will be the companys income?

3. Prepare a contribution margin income statement for the next year assuming sales decrease by 4%.