The following income statement applies to Baird Company for the current year Inc

Question

The following income statement applies to Baird Company for the current year Income Statement Sales revenue (440 units x $26) Variable cost (440 units x $11) Contribution margirn Fixed cost Net income $11,440 (4,840) 6,600 3,600) $3,eee Requirec 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 Baird Company will earn if it experiences a 15 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 15 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.

Explanation / Answer

Solution b:

Operating leverage = Contribution margin / Operating income = $6,600 / 3000 = 2.20

Solution b:

If revenue is increase by 15% then net income will increase by = % increase in revenue * Operating leverage = 15% * 2.20 = 33%

Revised net income = Existing net income * 133% = $3,990

Solution c 1:

Solution c2:

% change in net income = ($3,990 - $3,000) / $3,000 = 33%

Annual Income Statements Particulars Amount Sales revenue $13,156.00 Variable cost $5,566.00 Contribution margin $7,590.00 Fixed cost $3,600.00 Net Income $3,990.00

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.