Nagano Company, a merchandising firm, reported the following operating results: Income Statements Sales revenue (2,400 units

Question:

Nagano Company, a merchandising firm, reported the following operating results:
Income Statements
Sales revenue (2,400 units × $100).....................................$ 240,000
Cost of goods sold (2,400 units × $65).................................(156,000)
Gross margin..................................................................84,000
Sales commissions (10% of sales revenue) ..............................(24,000)
Administrative salaries expense..........................................(15,000)
Advertising expense........................................................(20,000)
Depreciation expense.......................................................(10,600)
Shipping and handling expense (2,400 units × $1)......................(2,400)
Net income.................................................................$ 12,000
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 that Nagano will earn if sales revenue increases by 10 percent.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamental Managerial Accounting Concepts

ISBN: 978-1259569197

8th edition

Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds

Question Posted: