A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.) Revenue $ 2,000,000 Less: Variable expenses 1,300,000 Contribution margin $ 700,000 Less: Fixed expenses 560,000 Net income $ 140,000

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 $2,000,000? Use the operating leverage factor to calculate the increase in net income resulting from a 25 percent increase in sales revenue.