The following budgeted income statement applies to Salter Company:

Income Statement

Sales revenue (1,000 units 3 $170) ......$ 170,000

Variable cost (1,000 units 3 $90) ...... (90,000)

Contribution margin ............. 80,000

Fixed costs ............... (64,000)

Net income ............... $ 16,000

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 Salter Company will earn if sales volume increases by 10 percent. Assume the sales price per unit remains unchanged at $170.

c. Verify your answer to Requirement b by constructing an alternative income statement based on a 10 percent increase in sales volume. The sales price per unit remains unchanged at $170.

Calculate the percentage change in net income for the two income statements.