The following income statement was drawn from the records of Vernon Company, a merchandising firm: VERNON COMPANY Income Statement For the Year Ended December 31, Year 1 Sales revenue (7,500 units $168) $1,260,000 Cost of goods sold (7,500 units $90) X (675,000) Gross margin 585,000 Sales commissions (10% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (7,500 units $4) Net Income (126,000) (88,000) (30,000) (45,000) (30,000) $ 266,000 Required a. Considering cost behavior, reconstruct the above "GAAP-based" Income statement using our new "Contribution Margin" (CM) format. b. Calculate the magnitude of operating leverage. c. Use the above measure of operating leverage to determine the amount of net Income Vernon will earn if sales increase by 10 percent.