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.

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