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The following income statement was drawn from the records of Solomon, a merchandising firm: SOLOMON COMPANY Income Statement For the Year Ended December 31 Sales

image text in transcribedimage text in transcribedThe following income statement was drawn from the records of Solomon, a merchandising firm:

SOLOMON COMPANY
Income Statement
For the Year Ended December 31
Sales revenue (6,500 units $165) $ 1,072,500
Cost of goods sold (6,500 units $82) (533,000 )
Gross margin 539,500
Sales commissions (5% of sales) (53,625 )
Administrative salaries expense (88,000 )
Advertising expense (34,000 )
Depreciation expense (44,000 )
Shipping and handling expenses (6,500 units $3) (19,500 )
Net income $ 300,375

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 Solomon will earn if sales increase by 10 percent.

The following income statement was drawn from the records of Solomon, a merchandising firm: SOLOMON COMPANY Income Statement For the Year Ended December 31 Sales revenue (6,500 units * $165) Cost of goods sold (6,500 units x $82) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (6,500 units * $3) Net income $1,072,500 (533,000) 539,500 (53,625) (88,000) (34,000) (44,000) (19,500) $ 300, 375 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 Solomon will earn if sales increase by 10 percent. Complete this question by entering your answers in the tabs below. Req A Req B and C Reconstruct the income statement using the contribution margin format. SOLOMON COMPANY Income Statement For the Year Ended December 31 Less: Variable costs 0 Less: Fixed $ 0 Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Solomon 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

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