Question

The following income statement applies to Jordan Company for the current year: Income Statement Sales revenue (420 units X $33) Variable cost (420 units x $18) Contribution margin Fixed cost Net income $13,860 (7,560) 6,300 (4,300) $ 2,000 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 Jordan Company will earn if it experiences a 20 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 20 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. Complete this question by entering your answers in the tabs below. Req A and B Req C1 Reg C2 Use the contribution margin approach to calculate the magnitude of operating leverage. Afterwards, use the operating leverage measure previously computed for Requirement A to determine the amount of net income that Jordan Company will earn if it experiences a 20 percent increase in revenue. The sales price per unit is not affected. (Do not round intermediate calculations. Round "Operating leverage" to 2 decimal place.) Show less а. Торт 3.15 Operating leverage b. Net income - Reg A and B ReqC1 >

Answer 1

Required A Operating Leverage: Quantity Price - Variable cost per onel) Quantity Price - Variable cost per unit) - Fixed Operating cost. - 420 ( 33 - 18) 420 (33 -18) - 4300 420x 15 420X15 - 4300 6300 = 3.15 (Answer). 2000 Required B Yevenue Given Operating by 20%, the Leverage is 3.15, we infer that if tato increase nee income will increase by 63% (20 x 3.15) uc Net Income = 2,000 * 1.63 123260 Answer. I Required CA (420x1.2 X 833) (420x1.2 x 2 18) Sales Revenue variable Gost Gonmouhon Margin fixed lost Net Income & 16, 632 & 9,072 & 7,560 4,300 & 3260

Renoi Required (2. 7. Change in net income: 3260 - 2000 x 100 2000 1 63% Answer