The following income statement was drawn from the records of Zachary Company, a merchandising firm: ZACHARY COMPANYIncome StatementFor the Year Ended December 31, Year 1Sales revenue (4,000 units × $168)$672,000 Cost of goods sold (4,000 units × $88) (352,000) Gross margin 320,000 Sales commissions (10% of sales) (67,200) Administrative salaries expense (85,000) Advertising expense (32,000) Depreciation expense (49,000) Shipping and handling expenses (4,000 units × $1) (4,000) Net income$82,800 Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Zachary will earn if sales increase by 10 percent. (Round your intermediate calculations and "Operating leverage" answer to 2 decimal places. Round the "Net income" value to nearest whole dollar.)

Operating leverage is the rate by which net income of a company changes with change in its revenue.…

Answered: ZACHARY COMPANY Income Statement For…

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

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

ZACHARY COMPANY
Income Statement
For the Year Ended December 31, Year 1
Sales revenue (4,000 units × $168)	$	672,000
Cost of goods sold (4,000 units × $88)		(352,000)
Gross margin		320,000
Sales commissions (10% of sales)		(67,200)
Administrative salaries expense		(85,000)
Advertising expense		(32,000)
Depreciation expense		(49,000)
Shipping and handling expenses (4,000 units × $1)		(4,000)
Net income	$	82,800

Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Zachary will earn if sales increase by 10 percent. (Round your intermediate calculations and "Operating leverage" answer to 2 decimal places. Round the "Net income" value to nearest whole dollar.)

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