Question
Exercise 7-28 Publishing; Contribution Income Statement (LO 7-7, 7-8) Europa Publications, Inc., specializes in reference books that keep abreast of the rapidly changing political and
Exercise 7-28 Publishing; Contribution Income Statement (LO 7-7, 7-8)
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 | $ | 1,400,000 | |
| Manufacturing costs: | |||
| Fixed | 417,000 | ||
| Variable | 626,000 | ||
| Selling costs: | |||
| Fixed | 28,000 | ||
| Variable | 58,000 | ||
| Administrative costs: | |||
| Fixed | 68,000 | ||
| Variable | 23,000 | ||
Required: 1-a. Prepare a traditional income statement for the company. 1-b. Prepare 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 14 percent. What will be the percentage increase in net income? 4. Which income statement would an operating manager use to answer requirement 3?
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