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WP_Demo 2-2

# WP_Demo 2-2 - b Use the contribution margin approach to...

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Demo 2-2 Effect of Operating Leverage Required a. Prepare an income statement using a contribution margin format. Income Statement Units \$ / Unit \$ Total Sales Revenue \$0 Variable Cost 0 \$0 Contribution Margin 0 0 0 Fixed Costs Net Income \$0 Operating Leverage = CM / NI = #DIV/0! 10% #DIV/0! Revised Income Statement Units \$ / Unit \$ Total % Change Sales Revenue \$0 #DIV/0! Variable Cost 0 \$0 Contribution Margin 0 0 0 Fixed Costs Net Income \$0 #DIV/0! Sharon Virgil owns a delivery service company. She charges customers \$10 per delivery. The company’s variable expenses average \$2 per delivery and fixed costs are \$600 per month. Ms. Virgil provided 100 deliveries during the most recent month.
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Unformatted text preview: b. Use the contribution margin approach to calculate the magnitude of operating leverage. Use the operating leverage measure computed aboveto determine the amount of net income that Cohen Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected. % Change in Net Income = % Change in Revenue x Operating Leverage = c. Verify your answer to Requirement b by constructing an income statement based on a 10 percent increase in sales revenue. The sales price is not affected. Calculate the percentage change in net income for the two income statements....
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