Question: The following income statement was drawn from the records of

The following income statement was drawn from the records of Butler Company, a merchandising firm:
BUTLER COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales revenue (2,000 units 3 $275) ............ $ 550,000
Cost of goods sold (2,000 units 3 $146) .......... (292,000)
Gross margin ...................... 258,000
Sales commissions (10% of sales) .............. (55,000)
Administrative salaries expense ................. (80,000)
Advertising expense .................... (38,000)
Depreciation expense .................... (50,000)
Shipping and handling expenses (2,000 units 3 $1.50) ...... (3,000)
Net income ....................... $ 32,000

Required
a. Reconstruct the income statement using the contribution margin format.
b. Calculate the magnitude of operating leverage.
c. Use the measure of operating leverage to determine the amount of net income Butler will earn if sales increase by 10 percent.


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  • CreatedFebruary 07, 2014
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