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

ROONEY COMPANY
Income Statement
For the Year Ended December 31
Sales revenue (5,000 units $170)	$	850,000
Cost of goods sold (5,000 units $87)		(435,000	)
Gross margin		415,000
Sales commissions (5% of sales)		(42,500	)
Administrative salaries expense		(88,000	)
Advertising expense		(36,000	)
Depreciation expense		(47,000	)
Shipping and handling expenses (5,000 units $2)		(10,000	)
Net income	$	191,500

Required

1. Reconstruct the income statement using the contribution margin format.

2. Calculate the magnitude of operating leverage.

3. Use the measure of operating leverage to determine the amount of net income Rooney will earn if sales increase by 10 percent.