Question
The following income statement was drawn from the records of Butler Company, a merchandising firm. BUTLER COMPANY Income Statement For the Year Ended December
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 (5,000 units x $165) $825,000 Cost of goods sold (5,000 units x $88) (440,000) Gross margin 385,000 Sales commissions (10% of sales) (82,500) Administrative salaries expense (81,000) Advertising expense (34,000) Depreciation expense (42,000) Shipping and handling expenses (5,000 (20,000) units $4) Net income $ 125,500 Required a. Reconstruct the income statement using the contribution margin format. Answer is not complete. BUTLER COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue Less: Variable costs Cost of goods sold Sales commissions Shipping and handling expenses Contribution margin Less: Fixed costs Administrative salaries $ 825,000 542,000x 283,000 1 BUTLER COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue Less: Variable costs Cost of goods sold Sales commissions. Shipping and handling expenses Contribution margin Less: Fixed costs Administrative salaries Advertising expense $ 825,000 542,000 x 283,000 Depreciation expense Shipping and handling 157,000 expenses Net income $ 125,500 b. Calculate the magnitude of operating leverage. (Round your answer to 2 decimal places.) Operating leverage times c. Use the measure of operating leverage to determine the amount of net income Butler will earn if sales increase by 10 percent. (Round your intermediate calculations to 2: decimal places and final answer to the nearest whole dollar amount.) Net income
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