Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The following income statement was drawn from the records of Walton Company, a merchandising firm: WALTON COMPANY Income Statement For the Year Ended December 31,
The following income statement was drawn from the records of Walton Company, a merchandising firm:
WALTON COMPANY | |||
Income Statement | |||
For the Year Ended December 31, 2018 | |||
Sales revenue (7,500 units $169) | $ | 1,267,500 | |
Cost of goods sold (7,500 units $80) | (600,000 | ) | |
Gross margin | 667,500 | ||
Sales commissions (10% of sales) | (126,750 | ) | |
Administrative salaries expense | (82,000 | ) | |
Advertising expense | (38,000 | ) | |
Depreciation expense | (42,000 | ) | |
Shipping and handling expenses (7,500 units $4) | (30,000 | ) | |
Net income | $ | 348,750 | |
Required
-
Reconstruct the income statement using the contribution margin format.
-
Calculate the magnitude of operating leverage.
-
Use the measure of operating leverage to determine the amount of net income Walton will earn if sales increase by 10 percent.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started