Connect Access Card For Fundamental Accounting Principles
Connect Access Card For Fundamental Accounting Principles
24th Edition
ISBN: 9781260158526
Author: John J Wild
Publisher: McGraw-Hill Education
Question
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Chapter 21, Problem 25E
To determine

Concept Introduction:

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperating income 

  Change in operating income = Changes in sales ×Degree of operating leverage

Requirement-1:

The Degree of operating leverage

Expert Solution
Check Mark

Answer to Problem 25E

The Degree of operating leverage shall be 4 times

Explanation of Solution

The Degree of operating leverage is calculated as follows:

Degree of operating leverage = Contribution Margin / Operating Income

= 432000/108000

= 4

To determine

Concept Introduction:

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperating income 

  Change in operating income = Changes in sales ×Degree of operating leverage

Requirement-2:

The Change in Net income after decrease in sales by 5%

Expert Solution
Check Mark

Answer to Problem 25E

The Change in Net income after decrease in sales by 5% shall be decrease by 20%

Explanation of Solution

The Change in Net income after decrease in sales by 5% is calculated as follows:

Change in net income = Change in sales * Degree of operating leverage

= -5%*4

= -20%

To determine

Concept Introduction:

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperating income 

  Change in operating income = Changes in sales ×Degree of operating leverage

Requirement-3:

To Prepare:

The Contribution margin income statement if sales decreases by 5%

Expert Solution
Check Mark

Answer to Problem 25E

The Contribution margin income statement if a sales decrease by 5% is as follows:

    Hudson Company
    Contribution Margin Income Statement
    For the year ended Dec. 31, 2020
    Sales $ 2,052,000
    Less: Variable Expenses $ (1,641,600)
    Contribution Margin$ 410,400
    Less: Fixed Costs $ (324,000)
    Income Before tax $ 86,400

Explanation of Solution

The Contribution margin income statement if a sales decrease by 5% is prepared as follows:

    Hudson Company
    Contribution Margin Income Statement
    For the year ended Dec. 31, 2020
    Sales (2160000*95%) $ 2,052,000
    Less: Variable Expenses (1728000*95%) $ (1,641,600)
    Contribution Margin$ 410,400
    Less: Fixed Costs $ (324,000)
    Income Before tax $ 86,400

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Chapter 21 Solutions

Connect Access Card For Fundamental Accounting Principles

Ch. 21 - Prob. 11DQCh. 21 - List three methods to measure cost behavior.Ch. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 17DQCh. 21 - Prob. 18DQCh. 21 - Prob. 19DQCh. 21 - Prob. 20DQCh. 21 - Prob. 21DQCh. 21 - Prob. 22DQCh. 21 - Cost behavior identification C1 Listed here are...Ch. 21 - QS 21-2 Cost behavior identification c1 ...Ch. 21 - QS 21-3 Cost behavior estimation—high-low method...Ch. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Prob. 10QSCh. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - Prob. 17QSCh. 21 - Prob. 18QSCh. 21 - Prob. 19QSCh. 21 - Prob. 20QSCh. 21 - Prob. 21QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Prob. 4ECh. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Prob. 8ECh. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Prob. 14ECh. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Prob. 19ECh. 21 - Prob. 20ECh. 21 - Prob. 21ECh. 21 - Prob. 22ECh. 21 - Prob. 23ECh. 21 - Prob. 24ECh. 21 - Prob. 25ECh. 21 - Prob. 26ECh. 21 - Prob. 27ECh. 21 - Prob. 1APSACh. 21 - Prob. 2APSACh. 21 - Prob. 3APSACh. 21 - Prob. 4APSACh. 21 - Prob. 5APSACh. 21 - Prob. 6APSACh. 21 - Prob. 7APSACh. 21 - Prob. 1BPSBCh. 21 - Prob. 2BPSBCh. 21 - Prob. 3BPSBCh. 21 - Prob. 4BPSBCh. 21 - Prob. 5BPSBCh. 21 - Prob. 6BPSBCh. 21 - Prob. 7BPSBCh. 21 - Prob. 21SPCh. 21 - Prob. 2AACh. 21 - Prob. 3AACh. 21 - Labor costs of an auto repair mechanic are seldom...Ch. 21 - Prob. 2BTNCh. 21 - Prob. 4BTNCh. 21 - Prob. 6BTN
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