Europa Publications, Inc., specializes in reference books that keep abreast of the rapidly changing political and economic issues in Europe. The results of the companys operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)

Sales revenue $2,000,000

Manufacturing costs:

Fixed 500,000

Variable 1,000,000

Selling costs:

Fixed 50,000

Variable 100,000

Administrative cost:

Fixed 120,000

Variable 30,000

Required:

1. Prepare a traditional income statement and a contribution income statement for the company.
2. What is the firms operating leverage for the sales volume generated during the prior year?
3. Suppose sales revenue increases by 10 percent. What will be the percentage increase in net income?
4. Which income statement would an operating manager use to answer requirement 3? Why?