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A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) $ 500,000 300,000 $ 200,000 150,000 $ 50,000 Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income

A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) $ 500,000 300,000 $ 200,000 150,000 $ 50,000 Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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  1. What is the hotel’s operating leverage factor when revenue is $500,000?
  2. Use the operating leverage factor to calculate the increase in net income resulting from a 20 percent increase in sales revenue.
! Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.] A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) $ 500,000 300,000 $ 200,000 Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income $ 50,000
Transcribed Image Text:! Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.] A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) $ 500,000 300,000 $ 200,000 Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income $ 50,000
Expert Solution
Step 1: Introduction :
  • CVP analysis is used to identify the changes in costs and volume that affect a company's operating income.
  • CVP analysis plays vital role in decision making.
  • It is used to find out number of units required to sell to gain a profit or break even point.

Operating Leverage Factor The is a Measure of Operating Leverage At a Particular Sales Volume. Operating Leverage Factor Computed by Dividing the Total Contribution Margin By Net Income.


Operating Leverage = (Contribution Margin / Net Income)
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