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11 November, 02:20

Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

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  1. 11 November, 02:49
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    Instructions are listed below.

    Explanation:

    A Contribution Margin Income Statement is a special format of the income statement that segregates the variable and fixed expenses involved in running a business. It shows the revenue generated after deducting all variable and fixed expenses separately.

    Sales=

    Variable costs:

    Cost of good sold=

    Sales commissions=

    Shipping expense=

    Total variable cost (-)

    Contribution margin=

    Fixed costs:

    Advertising expense=

    Shipping expense=

    Administrative salaries=

    Insurance expense=

    Depreciation expense=

    Total fixed cost = (-)

    Net operating profit=

    Degree of operating leverage = % change in EBIT / % change in sales
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