The following income statement was drawn from the records of Jordan Company, a merchandising firm:...
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Accounting
The following income statement was drawn from the records of Jordan Company, a merchandising firm:
| JORDAN COMPANY | |||
| Income Statement | |||
| For the Year Ended December 31, Year 1 | |||
| Sales revenue (6,500 units $166) | $ | 1,079,000 | |
| Cost of goods sold (6,500 units $90) | (585,000 | ) | |
| Gross margin | 494,000 | ||
| Sales commissions (5% of sales) | (53,950 | ) | |
| Administrative salaries expense | (88,000 | ) | |
| Advertising expense | (31,000 | ) | |
| Depreciation expense | (45,000 | ) | |
| Shipping and handling expenses (6,500 units $2) | (13,000 | ) | |
| Net income | $ | 263,050 | |
Required
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Reconstruct the income statement using the contribution margin format.
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Calculate the magnitude of operating leverage.
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Use the measure of operating leverage to determine the amount of net income Jordan will earn if sales increase by 20 percent.
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