The following income statement was drawn from the records of Butler Company, a merchandising firm: BUTLER COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue (5,000 units × $162) $ 810,000
Cost of goods sold (5,000 units × $86) (430,000 )
Gross margin 380,000
Sales commissions (5% of sales) (40,500 )
Administrative salaries expense (80,000 )
Advertising expense (39,000 )
Depreciation expense (50,000 )
Shipping and handling expenses (5,000 units × $5) (25,000 )
Net income $ 145,500
Required
a. Reconstruct the income statement using the contribution margin format.
b. Calculate the magnitude of operating leverage. (Round your answer to 2 decimal places.)
c. Use the measure of operating leverage to determine the amount of net income Butler will earn if sales increase by 20 percent. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.)