Exercise $7-28$

Publishing; Contribution Income Statement

$($LO$7-7,7-8)$

Europa Publications, Inc., specializes in reference books that keep abreast of the rapidly

changing political and economic issues in Europe. The results of the company's operations

during the prior year are given in the following table. All units produced during the year were

sold. $($Ignore income taxes.$)$

Sales revenue

$$2,000,000$

Manufacturing costs:

Fixed.

$500,000$

Variable

$1,000,000$

Selling costs:

Fixed

Variable

Administrative costs:

Fixed

Variable

Required:

Prepare a traditional income statement and a contribution income statement for the

company.

What is the firm's operating leverage for the sales volume generated during the prior year?

Suppose sales revenue increases by $10$ percent. What will be the percentage increase in net

income?

Which income statement would an operating manager use to answer requirement $3?$ Why?