The following income statement applies to Kawai Company for the current year: In

Question

The following income statement applies to Kawai Company for the current year: Income Statement sales revenue (200 units × $60) variable cost (200 units × $36) Contribution margin Pixed cost Net income $12,000 7,200 4,800 (1,600 $ 3,200 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 Kawai Company will earn if it experiences a 10 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 10 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 BRequirements Requirements C1 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 Kawai Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected. (Do not round intermediate calculations. Round "Operating leverage" to 1 decimal place.) show less a. Operating leverage b. Net income

Explanation / Answer

a Operating leverage = Contribution margin/Net income = 4800/3200= 1.5 b Change in net income = 1.5*10% = 15% Net income = 3200*1.15= 3680 c Sales revenue 13200 VAriable expenses 7920 Contribution margin 5280 Fixed cost 1600 Net income 3680 d Change in net income =(3680-3200)/3200= 15%

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