Question

echtronics Software, Inc. specializes in customized spreadsheet software. The results of the company's operations during the prior year (20xx) are given in the following table. All units produced during the year were sold. (Ignore income taxes.) Sales revenue Manufacturing costst Fixed Variable Selling costs: Fixed Variable Administrative costs Fixed Variable $3,200,000 510,000 1,020,000 52,000 110,000 122,000 32,000 Required 1-a. Prepare a traditional income statement for the company 1-b. Prepare a contribution income statement for the company. 2. What is the firm's operating leverage for the sales volume generated during the prior year? 3. Suppose sales revenue increases by 15 percent.What will be the percentage increase in net income? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 Req 3 Prepare a t TECHTRONICS SOFTWARE, INC. Income Statement For the Year Ended December 31, 20xx Next Prexl21 of 21SE

Answer 1

Under absorption costing method, both variable and fixed manufacturing costs are considered as production cost. So, TECHTRONICS SOFTWARE INC. Absorption Costing Income Statement For the Year Ended December 31, 20XX Sales Cost of Goods Sold Gross Profit Selling and Administrative Expense Net operating income $3,200,000 ($1,530,000) ($510,000+$1,020,000] $1,670,000 ($316,000) $1,354,000 I$52,000+ $110,000+ $122,000+$32,000]

Requirement-(1b Under variable costing, only variable manufacturing costs shall be considered as unit product cost. So, TECHTRONICS SOFTWARE INC. Variable Costing Income Statement For the Year Ended December 31, 20XX $3,200,000 $1,020,000 $2,180,000 Sales Cost of Goods Sold Gross Profit Less: Variable sell. & admin. exps.($142,000)[$110,000+ $32,000] Contribution Margin Less: Fixed Mfg. overhead Less: Fixed sell. & admin. exp Net operating income $2,038,000 ($510,000) ($174,000) [$52,000$122,000] $1,354,000

Degree of operating leverage Contribution margin / Net operating income Contribution Margin Net operating income Degree of operating leverage $2,038,000 $1,354,000 1.51 [$2,038,000 /$1,354,000] Requirement-(3: Percentage increase in net income = % Increase in sales revenue x Degree of operating leverage % Increase in sales revenue Degree of operating leverage Percentage increase in net income 15% 1.51 [Ref: Requirement-2] 22.58% [ 15% x 1.511