Q35E
ExpertverifiedFollowing is the income statement for Marrow Mufflers for the month of June 2018:
MARROW MUFFLERS
Contribution Margin Income Statement
Month Ended June 30, 2018
Net Sales Revenue (140 units _ $250) $ 35,000
Variable Costs (140 units _ $50) 7,000
Contribution Margin 28,000
Fixed Costs 11,500
Operating Income $ 16,500
Requirements
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%.
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% 
Determine how each change effects the elements of the costvolumeprofit graph by placing an X in the appropriate column(s).
EFFECT  
Sales Line  Fixed Cost Line  Total cost line  Breakeven point  
Change  Slope Increases  Slope decreases  Shifts up  Shifts Down  Slope Increases  Slope Decreases  Increases  Decreases 
Sales price per unit Increases 








Sales price per unit Decreases 








Variable cost per unit Increases 








Variable cost per unit decreases 








Total fixed cost increases 








Total fixed cost decreases 








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