Exercise 11-15A (Algo) Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4The following income statement was drawn from the records of Benson, a merchandising firm: BENSON COMPANYIncome StatementFor the Year Ended December 31Sales revenue (4,500 units × $163)$733,500 Cost of goods sold (4,500 units × $82) (369,000)Gross margin 364,500 Sales commissions (5% of sales) (36,675)Administrative salaries expense (85,000)Advertising expense (34,000)Depreciation expense (48,000)Shipping and handling expenses (4,500 units × $3) (13,500)Net income$147,325 RequiredReconstruct 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 Benson will earn if sales increase by 20 percent.

Operating leverage is represent to the operating riskOperating leverage is a measure of how revenue…

Answered: Exercise 11-15A (Algo) Using…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 11-15A (Algo) Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4

The following income statement was drawn from the records of Benson, a merchandising firm:

BENSON COMPANY
Income Statement
For the Year Ended December 31
Sales revenue (4,500 units × $163)	$	733,500
Cost of goods sold (4,500 units × $82)		(369,000	)
Gross margin		364,500
Sales commissions (5% of sales)		(36,675	)
Administrative salaries expense		(85,000	)
Advertising expense		(34,000	)
Depreciation expense		(48,000	)
Shipping and handling expenses (4,500 units × $3)		(13,500	)
Net income	$	147,325

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 Benson will earn if sales increase by 20 percent.

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