Question No-1

Potato companies most recent income statement is shown below:

	Total	Per Unit
Sales (30,000 units)	$ 150,000	$5
(-) Variable Expenses	90,000	3
Contribution Margin	60,000	2
(-)Fixed expenses	50,000
Net operating income	10,000

Required:

1. Compute the companys degree of operating leverage.
2. Using the degree of operating leverage, estimate the impact on net operating income of a 10%increase in sales.
3. Verify your estimate from part (d) above by constructing a new contribution format income statement for the company assuming a 10% increase in sales.
4. Determine the margin of safety in percentage.
5. Prepare a new income statement considering that variable expenses will increase 20 cents per unit, the selling price will increase 12%, and the sales volume will be decreased by 10%. Will you suggest the change?