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Expert-verified Found in: Page 1129 ### Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

# Following is the income statement for Marrow Mufflers for the month of June 2018:MARROW MUFFLERSContribution Margin Income StatementMonth Ended June 30, 2018Net Sales Revenue (140 units _ $250)$ 35,000Variable Costs (140 units _ $50) 7,000Contribution Margin 28,000Fixed Costs 11,500Operating Income$ 16,500Requirements 1. Calculate the degree of operating leverage. (Round to four decimal places.) 2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.) 3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.

1. Degree of operating leverage equals 1.6970
2. Percentage change in operating income equals 68%.
3. Operating income equals $27,700, which represents increase of 68% in operating income. See the step by step solution ### Step by Step Solution ## Step 1: Calculation of operating leverage ## Step 2: Calculation of estimated change in operating income ## Step 3: Contribution margin income statement  Revised unit sold (140 x (1+40%) 196 units Estimated sales (196 x$250) $49,000 Variable cost ($196 x $50)$9,800 Contribution margin $39,200 Fixed costs$11,500 Operating income $27,700 Change in operating income percentage ($27,700-$16,500) /$16,500) 67.88% or 68% ### Want to see more solutions like these? 