Exercise $2-14$A $($Algo$)$ Assessing the magnitude of operating leverage LO $2-4$

The following income statement applies to Solomon Company for the current year:

Income Statement

Sales revenue $(420$ units $\backslash$times $$38)$ $$15,960$

Variable cost $(420$ units $\backslash$times $$23)(9,660)$

Contribution margin $6,300$

Fixed cost $(4,800)$

Net income $$1,500$

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 Solomon Company will earn if it experiences a $15$ percent increase in revenue. The sales price per unit is not affected.

c$-1.$ Verify your answer to Requirement b by constructing an income statement based on a $15$ percent increase in sales revenue. The sales price is not affected.

c$-2.$ Calculate the percentage change in net income for the two income statements.