Question
The following income statement applies to Zachary Company for the current year: Income Statement Sales revenue (530 units x $43) Variable cost (530 units
The following income statement applies to Zachary Company for the current year: Income Statement Sales revenue (530 units x $43) Variable cost (530 units x $28) Contribution margin Fixed cost Net income $ 22,790 (14,840) 7,950 (5,300) $ 2,650 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 Zachary Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected. c-1. Verify your answer to Requirement b by constructing an income statement based on a 10 percent increase in sales revenue. The sales price is not affected. c-2. Calculate the percentage change in net income for the two income statements. The following income statement applies to Zachary Company for the current year: Income Statement Sales revenue (530 units x $43) Variable cost (530 units x $28) Contribution margin Fixed cost Net income $ 22,790 (14,840) 7,950 (5,300) $ 2,650 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 Zachary Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected. c-1. Verify your answer to Requirement b by constructing an income statement based on a 10 percent increase in sales revenue. The sales price is not affected. c-2. Calculate the percentage change in net income for the two income statements.
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