1a
Traditional income statement
| Sales |
1,200,000 |
| Cost of goods sold |
|
| Fixed |
- 283,000 |
| Variable |
- 616,000 |
| Gross profit |
301,000 |
| Operating expenses: |
|
| Variable administrative costs |
- 19,000 |
| Fixed administrative costs |
- 64,000 |
| Variable selling costs |
- 54,000 |
| Fixed selling costs |
- 24,000 |
| Net operating income |
140,000 |
1b
contribution income statement
| Sales revenue |
1,200,000 |
| Variable costs: |
|
| Manufacturing |
- 616,000 |
| Administrative |
- 19,000 |
| Selling |
- 54,000 |
| Contribution margin |
511,000 |
| Fixed costs: |
|
| Manufacturing |
- 283,000 |
| Administrative |
- 64,000 |
| Selling |
- 24,000 |
| Net operating income |
140,000 |
2.
Operating leverage = Contribution margin/Operating income
= 511,000/140,000
= 3.65
3.
Operating leverage = % change in operating income/% change in
sales
3.65 = % increase in operating income/12%
% increase in operating income = 3.65 x 12
= 43.8%
4.
Contribution income statement would be used by the operating
manager to find out operating leverage.
