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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
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) | $ | 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
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Reconstruct the income statement using the contribution margin format.
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Calculate the magnitude of operating leverage.
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Use the measure of operating leverage to determine the amount of net income Solomon will earn if sales increase by 10 percent.
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