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1. 2. 3 4. A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue Less: Variable expenses Contribution margin Less:

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A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue Less: Variable expenses Contribution margin Less: Fixed expenses Net income $1,400,000 784,000 $ 616,000 462,000 $ 154,000 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 30 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 $1,400,000? 4. Use the operating leverage factor to calculate the increase in net income resulting from a 35 percent increase in sales revenue. Show the hotel's cost structure by indicating the percentage of the hotel's revenue represented by each item on the income statement. NANTUCKET INN Contribution Income Statement Amount Percent Revenue $ 1,400,000 Variable expenses 784,000 Contribution margin $ 616,000 Fixed expenses 462,000 Net income $ 154,000 Suppose the hotel's revenue declines by 30 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income. Decrease in net income What is the hotel's operating leverage factor when revenue is $1,400,000? Operating leverage factor Use the operating leverage factor to calculate the increase in net income resulting from a 35 percent increase in sales revenue. Increase in net income

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