Pacific Rim Publications, Inc. specializes in reference books that keep abreast of political and economic issues in the Pacific Rim countries. 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 12 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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Sales revenue Manufacturing costs: Fixed Variable Selling costs: $1,000,000 250,000 500,000 Fixed 25,000 Variable 50,000 Administrative costs: Fixed Variable 60,000 15,000