Techtronics Software Inc specializes in customized spreadshe

Techtronics Software, Inc. specializes in customized spreadsheet software. The results of the company\'s operations during the prior year (20xx) are given in the following table. All units produced during the year were sold. (Ignore income taxes.) Sales revenue Manufacturing costs: Fixed Variable Selling costs: Fixed Variable Administrative costs: Fixed Variable $4,300,000 565,000 1,130,000 63,000 165,000 133,000 43,000 Required 1-a. Prepare a traditional income statement for the company. 1-b. Prepare a contribution income statement for the company. 2. What is the firm\'s operating leverage for the sales volume generated during the prior year? 3. Suppose sales revenue increases by 20 percent. What will be the percentage increase in net income? Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 2 Req 3

Solution

1-a Traditional Format Income Statement Sales Revenue $ 43,00,000 Costs of goods sold $ 16,95,000 Gross Profit $ 26,05,000 Operating Expenses: Selling Costs $   2,28,000 Administratie costs $   1,76,000 Net Income $ 22,01,000 Working: a. Since all of the goods manufactured is sold , Costs of goods manuafactured will be costs of goods sold. Manufacturing cots: Fixed $   5,65,000 Variable $ 11,30,000 Total Manufaturing Costs $ 16,95,000 So, Total Costs of goods sold $ 16,95,000 b. Selling Costs: Fixed $       63,000 Variable $   1,65,000 Total Selling Costs $   2,28,000 c. Administrative costs: Fixed $   1,33,000 Variable $       43,000 Total Administrative costs $   1,76,000 1-b Contribution Format Income Statement Sales Revenue $ 43,00,000 Less: Variable costs: Variable cost of goods sold $ 11,30,000 Variable Selling costs $   1,65,000 Variable Adinistrative costs $       43,000 Contributon Margin $ 29,62,000 Less: Fixed Costs: Fixed cost of goods sold $   5,65,000 Fixed Selling costs $       63,000 Fixed Adinistrative costs $   1,33,000 Net Income $ 22,01,000 2) Operating Leverage         1.346 Working: Operating leverage = Contribution Margin / Net Income = $ 29,62,000 / $ 22,01,000 =              1.346 3) Percentage Increase in Net income 26.92% Working: Percentae Increase in Net Income = Operating Leverage x Percentage Change in sales =              1.346 x 20% = 26.92%