The following budgeted income statement applies to Biggio Company: 

.:.

Required

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

b. Use the operating leverage measure computed in Requirement α to determine the amount of net income that Biggio Company will earn if sales volume increases by 10 percent. Assume the sales price per unit remains unchanged at $90.

c. Verify your answer to Requirement b by constructing an alternative income statement based on a 10 percent increase in sales volume. The sales price per unit remains unchanged at $90. Calculate the percentage change in net income for the two income statements. 

Transcribed Image Text:

Income Statement $ 90,000 (50,000) Sales Revenue (1,000 units x $90) Variable Cost (1,000 units × $50) Contribution margin Fixed Costs 40,000 (30,000) $ 10,000 Net Income