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

Revenue	$	1,400,000
Less: Variable expenses		784,000
Contribution margin	$	616,000
Less: Fixed expenses		462,000
Net income	$	154,000

Required: 1. Show the hotels cost structure by indicating the percentage of the hotels revenue represented by each item on the income statement. 2. Suppose the hotels revenue declines by 30 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income. 3. What is the hotels 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 hotels cost structure by indicating the percentage of the hotels 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 hotels 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 hotels 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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