What is the firm operating leverage for the sales volume

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Question - 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

50,000

     Variable

100,000

  Administrative costs:

 

     Fixed

120,000

     Variable

30,000

Required:

1-a. Prepare a traditional income statement for the company.

1-b. Prepare a contribution income statement for the company.

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

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

Reference no: EM131870870

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