The following income statement was drawn from the records of Franklin, a merchandising firm: FRANKLIN COMPANY Income Statement For the Year Ended December 31 Sales revenue (5,500 units x $170) Cost of goods sold (5,500 units x $87) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (5,500 units x $4) Net income $935,000 (478,500) 456,500 (46,750) (87,000) (40,000) (47,000) (22,000) $ 213,750 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 Franklin will earn if sales increase by 10 percent.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The following income statement was drawn from the records of Franklin, a merchandising firm:
FRANKLIN COMPANY
Income Statement
For the Year Ended December 31
Sales revenue (5,500 units x $170)
Cost of goods sold (5,500 units x $87)
Gross margin
Sales commissions (5% of sales)
Administrative salaries expense
Advertising expense
Depreciation expense
Shipping and handl expenses (5,500 units X $4)
Net income
$935,000
(478,500)
456,500
(46,750)
(87,000)
(40,000)
(47,000)
(22,000)
$ 213,750
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 Franklin will earn if sales increase by 10
percent.
Transcribed Image Text:The following income statement was drawn from the records of Franklin, a merchandising firm: FRANKLIN COMPANY Income Statement For the Year Ended December 31 Sales revenue (5,500 units x $170) Cost of goods sold (5,500 units x $87) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handl expenses (5,500 units X $4) Net income $935,000 (478,500) 456,500 (46,750) (87,000) (40,000) (47,000) (22,000) $ 213,750 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 Franklin will earn if sales increase by 10 percent.
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