A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.)

Required:
1. Show the hotel’s cost structure by indicating the percentage of the hotel’s revenue represented by each item on the income statement.
2. Suppose the hotel’s revenue declines by 15 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income.
3. What is the hotel’s operating leverage factor when revenue is $500,000?
4. Use the operating leverage factor to calculate the increase in net income resulting from a 20 percent increase in sales revenue.

Transcribed Image Text:

Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income $500,000 300,000 $200,000 150,000 $ 50,000