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

MUNOZ COMPANY
Income Statement
For the Year Ended December 31, 2018
Sales revenue (5,500 units $169)	$	929,500
Cost of goods sold (5,500 units $80)		(440,000	)
Gross margin		489,500
Sales commissions (10% of sales)		(92,950	)
Administrative salaries expense		(83,000	)
Advertising expense		(34,000	)
Depreciation expense		(44,000	)
Shipping and handling expenses (5,500 units $5)		(27,500	)
Net income	$	208,050

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 Munoz will earn if sales increase by 10 percent.

Reconstruct the income statement using the contribution margin format.

MUNOZ COMPANY
Income Statement
For the Year Ended December 31, 2018
Less: Variable costs
	0
Less: Fixed costs
	$0