The following income statement applies to Stuart Company fo the current year.
Income statement
Sales revenue(400 units x $25) $10000
Variable cost (400 x $10) (4000)
Contribution margin 6000
Fixed costs (3500)
Net income nn $2500
a. Use the contribution margin approach to calculate the magnitude of operating leverge.
b. Use the operating leverage measure computed in Requirement a to determine the amount of net incom that Stuart Company will earn if it experiences a 10 percent increase in revenue. The sales price per unit is not affected.
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.