Nagano Company, a merchandising firm, reported the following operating results.

LO $2-3,2-4$

Income Statements

Sales revenue $(2,400$ units $\backslash$times $$100)$ $ $240,000$

Cost of goods sold $(2,400$ units $\backslash$times $$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 $\backslash$times $$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.