The Hudson River Company has annual sales of $8,000,000 (unit sale price is $400), a Contribution Margin (CM) ratio of 25% and fixed costs of $1,000,000 (excluding depreciation). Annual depreciation is $400,000. Tax rate is 40%.

a) Prepare an income statement for the Summerside Company

b) Calculate operating breakeven point in units and dollars

c) Explain the meaning of Degree of Operating Leverage (DOL)

d) Calculate at the current level of production the: degree of operating leverage (DOL)

e) Assume that sales are to increase by 20%, using the results in part (c), calculate the percentage increase in operating income and net income.