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Exercise 2-13A Using contribution margin format income statement to measure the magnitude of operating leverage LO...

Question:

Exercise 2-13A Using contribution margin format income statement to measure the magnitude of operating leverage LO 2-3, 2-4 TComplete this question by entering your answers in the tabs below. Required A Req B and C Reconstruct the income statement usComplete this question by entering your answers in the tabs below. Required A Req B and C Calculate the magnitude of operatin

Exercise 2-13A Using contribution margin format income statement to measure the magnitude of operating leverage LO 2-3, 2-4 The following income statement was drawn from the records of Stuart Company, a merchandising firm: STUART COMPANY Income Statement For the Year Ended December 31, 2018 Sales revenue (8,000 units X $170) $1,360,000 Cost of goods sold (8,000 units * $81) (648,000) Gross margin 712,000 Sales commissions (10% of sales) (136,000) Administrative salaries expense (89,000) Advertising expense (31,000) Depreciation expense (41,000) Shipping and handling expenses (8,000 units (8,000) x $1 ) Net income $ 407,000 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 Stuart will earn if sales increase by 20 percent.
Complete this question by entering your answers in the tabs below. Required A Req B and C Reconstruct the income statement using the contribution margin format. STUART COMPANY Income Statement For the Year Ended December 31, 2018 Less: Variable costs Less: Fixed costs
Complete this question by entering your answers in the tabs below. Required A Req B and C Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Stuart will earn if sales increase by 20 percent. (Round intermediate and "Operating leverage" answer to 2 decimal places.) b. times Operating leverage Net income < Required A Req B and C >

Answers

Contribution margin income statement

Sales 1360000
Less: Variable expense
Cost of goods sold 648000
Sales commission 136000
Shipping expense 8000
Total Variable expense 792000
Contribution margin 568000
Less: Fixed expense
Administrative salaries expense 89000
Advertising expense 31000
Depreciation expense 41000
Total fixed cost 161000
Net income 407000

b) Degree of operating leverage = Contribution margin/Net income = 568000/407000 = 1.40

c) Net income increase by 1.40*20 = 28

Net income = 407000*1.28 = 520960

.

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