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The following income statement applies to Gentect Company for the current year: Sales revenue (450 units $80) Cost of goods sold (450 units $40)
The following income statement applies to Gentect Company for the current year: Sales revenue (450 units $80) Cost of goods sold (450 units $40) Contribution margin Fixed costs Net income Income Statement $36,000 (18,000) 18,000 (3,000) $15,000 Required a. Use the contribution margin approach to calculate the magnitude of operating leverage. b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Gentect Company will earn if it experiences a 20 percent increase in revenue. The sales price per unit is not affected. c. Verify your answer to Requirement b by constructing an income statement based on a 20 percent increase in sales revenue. The sales price is not affected. Calculate the percentage change in net income for the two income statements.
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