Question

The following income statement was drawn from the records of Campbell Company, a merchandising firm: CAMPBELL COMPANY Income Statement For the Year Ended December 31, 2018 Sales revenue (6,500 units × $168) $ 1,092,000 Cost of goods sold (6,500 units × $82) (533,000 ) Gross margin 559,000 Sales commissions (10% of sales) (109,200 ) Administrative salaries expense (85,000 ) Advertising expense (35,000 ) Depreciation expense (48,000 ) Shipping and handling expenses (6,500 units × $2) (13,000 ) Net income $ 268,800 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 Campbell will earn if sales increase by 10 percent.

Answer 1

	Contribution margin format
Sales revenue					1,092,000
less:Variable expense
cost of goods sold				533,000
Sales commission				109,200
shipping and handling expense				13,000	655,200
Contribution margin					436,800
less:Fixed expense
Administrative salaries expense				85,000
Advertising expense				35,000
Depreciation expense				48,000	168,000
Net income					268,800
operating leverage =		contribution/net income
		436,800/268,800
		1.625
amount of net income
percentage increase = 10%*1.625
		16.25	%
		43680	increase in net income if sales increase by 10%
total net income = 268,800+43,680
		312,480	answer