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The following income statement was drawn from the records of Thornton, a merchandising firm: THORNTON COMPANY Income Statement For the Year Ended December 31 Sales
The following income statement was drawn from the records of Thornton, a merchandising firm: THORNTON COMPANY Income Statement For the Year Ended December 31 Sales revenue (5,500 units x $160) cost of goods sold (5,500 units x $84) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (5,500 units * $2) Net income $ 880,000 (462,000) 418,000 (44,000) (87,000) (33,000) (44,000) (11,000) $ 199,000 Required a. Reconstruct the income statement using the contribution margin format. b. Calculate the magnitude of operating leverage. c. Use the measure of operating leverage to determine the amount of net income Thornton will earn if sales increase by 20 percent. Reg A Req B and C Reconstruct the income statement using the contribution margin format. THORNTON COMPANY Income Statement For the Year Ended December 31 Less: Variable costs 0 Less: Fixed costs $ 0 Complete this question by entering your answers in the tabs below. Reg A Req B and C Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Thornton will earn if sales increase by 20 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
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