Exercise 11-15 Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4

The following income statement was drawn from the records of Rundle Company, a merchandising firm:

RUNDLE COMPANY
Income Statement
For the Year Ended December 31, 2018
Sales revenue (6,500 units $161)	$	1,046,500
Cost of goods sold (6,500 units $87)		(565,500	)
Gross margin		481,000
Sales commissions (5% of sales)		(52,325	)
Administrative salaries expense		(81,000	)
Advertising expense		(33,000	)
Depreciation expense		(44,000	)
Shipping and handling expenses (6,500 units $2)		(13,000	)
Net income	$	257,675

Required

Reconstruct the income statement using the contribution margin format.

Calculate the magnitude of operating leverage.

Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent.

Reconstruct the income statement using the contribution margin format.

RUNDLE COMPANY
Income Statement
For the Year Ended December 31, 2018
Less: Variable costs
Less: Fixed costs

Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent. (Round "Operating leverage" to 2 decimal places and round "Net income" answer to nearest whole dollar.)

b.	Operating leverage		times
c.	Net income