Question

Below is the contribution margin income statement for a company's first year of operation. Next year,...

Below is the contribution margin income statement for a company's first year of operation. Next year, they anticipate sales volume to increase by 6%. What will be the net change in operating income?

Revenue $900,000
Variable Cost 615,000
Contribution Margin 285,000
Fixed Cost 190,000
Operating Income 95,000

157% increase

6% increase

No change

18% increase
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If sales volume increase by 6% then operating income will increase by 18%. Hence last option is correct i.e 18% increase.

EXPLANATION:

Operating leverage= Contribution/operating income

=285000/95000

=3 times

Operating leverage shows relationship between revenue and operating income. Operating leverage of 3 times means if revenue increases by 1% then operating income would change by (3 times* 1%)=3%.

So if the revenue increases by 6% then operating income will increase by (3 times* 6%)=18%.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Below is the contribution margin income statement for a company's first year of operation. Next year,...
Below is the contribution margin income statement for a company's first year of operation. Next year, they anticipate sales volume to increase by 5%. What will be the net change in operating income? Revenue $600,000 Variable Cost 410,000 Contribution Margin 190,000 Fixed Cost 175,000 Operating Income 15,000 5% increase 300% increase No change 63% increase
The following is the contribution margin income statement for Hoyland Co based on their earnings last...
The following is the contribution margin income statement for Hoyland Co based on their earnings last year. Estimate operating income if sales revenue next year is $700,000. Revenue 1,000,000 Variable Cost 700,000 Contribution Margin 300,000 Fixed Cost 250,000 Operating Income 50,000
1. A company's contribution margin is $90 per unit at a sales level of 5,400 units....
1. A company's contribution margin is $90 per unit at a sales level of 5,400 units. The company's operating income is $37,000. The company's operating leverage is closest to _____. (Round-off the answer to one decimal place.) a.14.9 b.13.1 c.12.4 d.14.0 2. The break-even point is: a.the same for every company in the same industry. b.the point where a company's profits are maximized. c.the point where total revenue equals total cost. d.the point where sales revenues equal variable costs. 3....
Contribution Income Statement Sales (12,000 units) ……………………….. 72,000 Variable expenses ……………………… 48,000 Contribution Margin ………………… 24,000...
Contribution Income Statement Sales (12,000 units) ……………………….. 72,000 Variable expenses ……………………… 48,000 Contribution Margin ………………… 24,000 Fixed expenses ………………………… 10,000 Net Operating Income ………………. 14,000 Jackpot company sells a single product, has provided its contribution format income statement for June. Required: Prepare Contribution Income Statement assuming that the business expects an increase in its total sales (total revenue) by $3,000 and decrease in variable cost per unit by 10%.
A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue $...
A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue $ 1,600,000 Less: Variable expenses 976,000 Contribution margin $ 624,000 Less: Fixed expenses 416,000 Net income $ 208,000 Required: Show the hotel’s cost structure by indicating the percentage of the hotel’s revenue represented by each item on the income statement. Suppose the hotel’s revenue declines by 30 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income. What is the hotel’s operating...
Frieden Company's contribution format income statement for last month is shown below:   Sales (45,000 units) $...
Frieden Company's contribution format income statement for last month is shown below:   Sales (45,000 units) $ 1,800,000   Variable expenses 1,260,000   Contribution margin 540,000   Fixed expenses 432,000   Operating income $ 108,000 Competition is intense, and Frieden Company’s profits vary considerably from one year to the next. Management is exploring opportunities to increase profitability. Required: 1. Frieden’s management is considering a major upgrade to the manufacturing equipment, which would result in fixed expenses increasing by $540,000 per month. However, variable expenses would...
Mastery Problem: CVP and the Contribution Margin Income Statement For planning and control purposes, managers have...
Mastery Problem: CVP and the Contribution Margin Income Statement For planning and control purposes, managers have a powerful tool known as cost-volume-profit (CVP) analysis. CVP shows how revenues, expenses, and profits behave as volume changes. In CVP analysis, costs are classified according to behavior: variable or fixed. Costs are classified by behavior on the income statement in CVP analysis to arrive at operating income. This format is known as the contribution margin income statement. Complete the following table to illustrate...
Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement...
Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (10,800 units at $280 each) $ 3,024,000 Variable costs (10,800 units at $210 each) 2,268,000 Contribution margin $ 756,000 Fixed costs 567,000 Pretax income $ 189,000 1. Compute Hudson Co.'s break-even point in units and. 2. Compute Hudson Co.'s break-even point in sales dollars. 3. Assume the company is considering investing in a new machine that will...
An income statement for Sam's Bookstore for the first quarter of the year is presented below:...
An income statement for Sam's Bookstore for the first quarter of the year is presented below: Sam's Bookstore Income Statement For Quarter Ended March 31 Sales $ 900,000 Cost of goods sold 630,000 Gross margin 270,000 Selling and administrative expenses Selling $ 100,000 Administration 104,000 204,000 Net operating income $ 66,000 On average, a book sells for $50. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 4% of sales...
Crystal Corporation produces a single product. The company's variable costing income statement for the month of...
Crystal Corporation produces a single product. The company's variable costing income statement for the month of May appears below: Crystal Corporation Income Statement For the month ended May 31 Sales ($17 per unit) $3,102,500 Variable expenses: Variable cost of goods sold 1,825,000 Variable selling expense 547,500 Total variable expenses 2,372,500 Contribution margin 730,000 Fixed expenses: Fixed manufacturing overhead 405,000 Fixed selling and administrative 182,500 Total fixed expenses 587,500 Net operating income $142,500 The company produced 135,000 units in May and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT