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

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

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 Stuart Company will earn if it experiences a $20$ 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 $20$ 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.

Complete this question by entering your answers in the tabs below.

Req A and $B$

Req C$1$

Req C$2$

a$.$ Use the contribution margin approach to calculate the magnitude of operating leverage.

b$.$ Afterwards, use the operating leverage measure previously computed for Requirement A to determine the amount of net income that Stuart Company will earn if it experiences a $20$ percent increase in revenue. The sales price per unit is not affected.

Note: Do not round intermediate calculations. Round "Operating leverage" co $2$ decimal places.

a$.$ Operating leverage

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b$.$ Net $$ncome