Income Statement Sales revenue (550 units x $45) Variable cost (550 units × $30) Contribution margin Fixed cost Net income $24,750 (16,500) 8,250 (5,500) $2,750 Required a. Use the contribution margin approach to calculate the magnitude of operating leverage. b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Rooney Company will earn if it experiences a 20 percent increase in revenue. The sales price per unit is not affected. c-1. Verify your answer to Requirement b by constructing an income statement based on a 20 percent increase in sales revenue. The sales price is not affected. c-2. Calculate the percentage change in net income for the two income statements.
Income Statement Sales revenue (550 units x $45) Variable cost (550 units × $30) Contribution margin Fixed cost Net income $24,750 (16,500) 8,250 (5,500) $2,750 Required a. Use the contribution margin approach to calculate the magnitude of operating leverage. b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Rooney Company will earn if it experiences a 20 percent increase in revenue. The sales price per unit is not affected. c-1. Verify your answer to Requirement b by constructing an income statement based on a 20 percent increase in sales revenue. The sales price is not affected. c-2. Calculate the percentage change in net income for the two income statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
5
Transcribed Image Text:Income Statement
Sales revenue (550 units × $45)
Variable cost (550 units × $30)
Contribution margin
Fixed cost
Net income
Required
a. Use the contribution margin approach to calculate the magnitude of operating leverage.
b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Rooney Company will
earn if it experiences a 20 percent increase in revenue. The sales price per unit is not affected.
c-1. Verify your answer to Requirement b by constructing an income statement based on a 20 percent increase in sales revenue. The
sales price is not affected.
c-2. Calculate the percentage change in net income for the two income statements.
Complete this question by entering your answers in the tabs below.
Req A and B
Req C1
$24,750
(16,500)
8,250
(5,500)
$2,750
Req C2
a. Operating leverage
b. Net income
a. Use the contribution margin approach to calculate the magnitude of operating leverage.
b. Afterwards, use the operating leverage measure previously computed for Requirement A to determine the amount of net
income that Rooney Company will earn if it experiences a 20 percent increase in revenue. The sales price per unit is not
affected.
Note: Do not round intermediate calculations. Round "Operating leverage" to 2 decimal places.
3.00
17,600 X
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