Answered: Sales revenue $2,000,000 Manufacturing…

Sales revenue $2,000,000 Manufacturing costs: Fixed . 500,000 Variable 1,000,000 Selling costs: Fixed . 50,000 Variable 100,000 Administrative costs: Fixed . 120,000 Variable 30,000

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...

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Question

Europa Publications, Inc. specializes in reference books that keep abreast of the rapidly changing political and economic issues in Europe. The results of the company’s operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)

Required:
1. Prepare a traditional income statement and 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 10 percent. What will be the percentage increase in net income?
4. Which income statement would an operating manager use to answer requirement (3)? Why?

Sales revenue
$2,000,000
Manufacturing costs:
Fixed .
500,000
Variable
1,000,000
Selling costs:
Fixed .
50,000
Variable
100,000
Administrative costs:
Fixed .
120,000
Variable
30,000

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