As the data on the partial income statements shown as follows reveal, Netflix, Inc. increased its revenues by 72 percent from 2015 to 2017, while its operating income during this period increased by 174 percent.
Required
a. What concept explains, at least in part, how Netflix’s net income could rise by 174 percent when its revenue rose only 72 percent?
b. Does the concept identified in Requirement a result from fixed costs or variable costs?
c. Analyze the data for the four expense categories presented. Which one seems the most responsible for the causing percentage increase in operating income to be so much greater than the percentage increase in revenues? Explain your answer with computations. Note: You will need to use some creative thought for this, as the material in the chapter does not show an exact demonstration, but the concepts involved should be familiar.
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