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, Year 1 Sales revenue (6,500 units $165) $ 1,072,500 Cost of goods sold (6,500 units $90) (585,000 ) Gross margin 487,500 Sales commissions (5% of sales) (53,625 ) Administrative salaries expense (87,000 ) Advertising expense (37,000 ) Depreciation expense (50,000 ) Shipping and handling expenses (6,500 units $4) (26,000 ) Net income $ 233,875

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 Rundle will earn if sales increase by 10 percent.

In this question by entering your answers in the tabs below.

• Req A

Reconstruct the income statement using the contribution margin format.

RUNDLE COMPANYIncome StatementFor the Year Ended December 31, Year 1

Less: Variable costs

0Less: Fixed costs

$0

• Req B and C

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 10 percent. (Round your intermediate calculations and "Operating leverage" answer to 2 decimal places. Round the "Net income" value to nearest whole dollar.)

b.Operating leverage

c.Net income