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
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.)
Required:
1. Prepare a traditional income statement and 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?
4. Which income statement would an operating manager use to answer requirement (3)? Why?
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