Please help me understand, show work step by step I have to use this for my midt

Question

Please help me understand, show work step by step I have to use this for my midterm...

                                                                                              TOTAL                         PER UNIT

                                                                                                                                   $               %

SALES                                                                                $450,000                  $ 20                100

LESS VARIABLE EXPENSES                                              315,000                      14                      70

CONTRIBUTION MARGIN                                               $135,000                    $6                      30

LESS FIXED EXPENSES                                                        75,000

NET INCOME                                                                       $60.000

1. COMPUTE THE DEGREE OF OPERATING LEVERAGE USING THE ORIGINAL DATA.

2. ASSUMING THE COMPANY INCREASES SALES BY 10% HOW MUCH WILL NET INCOME INCREASE?

3. PROVE YOUR ANSWER IN #2 QUESTION BY PREPARING A CONTRIBUTION INCOME STATEMENT AT THE LEVEL OF ACTIVITY.

Explanation / Answer

Hi,

Please find the answers as follows:

1) Degree of Operating Leverage = Contribution/Net Operating Income = 135000/60000 = 2.25

2) If sales increases by 10%

Sales = 450000 + 10%*450000 = 495000

Less Variable Cost = 70% of 495000 = 346500

Contribution = 495000 - 346500 = 148500

Less Fixed Cost = 75000

Net Income = 73500

Therefore, net income will increase by 73500 - 60000 = 13500

3) Income statement already prepared under step 2.

Thanks.

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