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, Year 1 $1,352,000 Sales revenue (8,000 units x $169) Cost of goods sold (8,000 units x $88) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (8,000 units x $5) Net income Required (704,000) 648,000 (67,600) (90,000) (32,000) (46,000) (40,000) $372,400 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.

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, Year 1 $1,352,000 Sales revenue (8,000 units x $169) Cost of goods sold (8,000 units x $88) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (8,000 units x $5) Net income Required (704,000) 648,000 (67,600) (90,000) (32,000) (46,000) (40,000) $372,400 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 2MC: The following information is available for Cooke Company for the current year: The gross margin is...

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