Question

Following is the income statement for Morning Mufflers for the month of June 2018: B (Click the icon to view the contribution margin income statement.) i Data Table þund 1 Requirements of op d in Iculati Morning Mufflers Contribution Margin Income Statement Month Ended June 30, 2018 Net Sales Revenue (200 units x $200) $ 40,000 Variable Costs (200 units x $50) 10,000 Contribution Margin 30,000 Fixed Costs 11,000 $ 19,000 Operating Income 1. Calculate the degree of operating leverage. (Round to four decimal places.) 2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 10% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.) 3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 10%. ling a Print Done Print Done Variable Costs

Answer 1

1) Degree of operating leverage = Contribution margin/Net income

= 30000/19000

Degree of operating leverage = 1.5789

2) Net income increase by (10*1.5789) = 15.789

Net income will be = 19000*115.789 = 22000

3) Contribution margin income statement

Net sales revenue (40000*1.1)	44000
Variable cost (10000*1.1)	11000
Contribution margin	33000
Fixed cost	11000
Operating income	22000