A contribution income statement for the La Jolla Inn is shown below. (Ignore income taxes.)
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| Revenue |
$ |
1,800,000 |
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| Less: Variable expenses |
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1,170,000 |
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| Contribution margin |
$ |
630,000 |
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| Less: Fixed expenses |
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504,000 |
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| Net income |
$ |
126,000 |
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| 1. |
Show the hotel's cost structure by indicating the percentage of the hotel's revenue represented by each item on the income statement.
| 2. |
Suppose the hotel's revenue declines by 30 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income.
| 3. |
What is the hotel's operating leverage factor when revenue is $1,800,000?
| 4. |
Use the operating leverage factor to calculate the increase in net income resulting from a 35 percent increase in sales revenue.
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