Exercise 11-15 Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4
The following income statement was drawn from the records of Rundle Company, a merchandising firm:
RUNDLE COMPANY Income Statement For the Year Ended December 31, 2018 Sales revenue (6,500 units à $161) $ 1,046,500 Cost of goods sold (6,500 units à $87) (565,500 ) Gross margin 481,000 Sales commissions (5% of sales) (52,325 ) Administrative salaries expense (81,000 ) Advertising expense (33,000 ) Depreciation expense (44,000 ) Shipping and handling expenses (6,500 units à $2) (13,000 ) Net income $ 257,675
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 Rundle will earn if sales increase by 20 percent.
Reconstruct the income statement using the contribution margin format.
RUNDLE COMPANY Income Statement For the Year Ended December 31, 2018 Less: Variable costs Less: Fixed costs
Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent. (Round "Operating leverage" to 2 decimal places and round "Net income" answer to nearest whole dollar.)
b. Operating leverage times c. Net income
Exercise 11-15 Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4
The following income statement was drawn from the records of Rundle Company, a merchandising firm:
| RUNDLE COMPANY | |||
| Income Statement | |||
| For the Year Ended December 31, 2018 | |||
| Sales revenue (6,500 units à $161) | $ | 1,046,500 | |
| Cost of goods sold (6,500 units à $87) | (565,500 | ) | |
| Gross margin | 481,000 | ||
| Sales commissions (5% of sales) | (52,325 | ) | |
| Administrative salaries expense | (81,000 | ) | |
| Advertising expense | (33,000 | ) | |
| Depreciation expense | (44,000 | ) | |
| Shipping and handling expenses (6,500 units à $2) | (13,000 | ) | |
| Net income | $ | 257,675 | |
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 Rundle will earn if sales increase by 20 percent.
Reconstruct the income statement using the contribution margin format.
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Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent. (Round "Operating leverage" to 2 decimal places and round "Net income" answer to nearest whole dollar.)
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Related questions
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):
| Sales | $ | 45,000 |
| Variable expenses | 31,500 | |
| Contribution margin | 13,500 | |
| Fixed expenses | 8,640 | |
| Net operating income | $ | 4,860 |
| 1. What is the contribution margin per unit? (Round your answer to 2 decimal places.) 2. What is the contribution margin ratio? 4. If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.) 6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income? 7. If the variable cost per unit increases by $1, spending on advertising increases by $1,350, and unit sales increase by 170 units, what would be the net operating income? 8. What is the break-even point in unit sales? 9. What is the break-even point in dollar sales? 10. How many units must be sold to achieve a target profit of $8,100? 11. What is the margin of safety in dollars? What is the margin of safety percentage? 12. What is the degree of operating leverage? (Round your answer to 2 decimal places.) 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.) | ||
Oslo Company prepared the following contribution format incomestatement based on a sales volume of 1,000 units (the relevantrange of production is 500 units to 1,500 units): |
| Sales | $ | 25,700 |
| Variableexpenses | 13,900 | |
| Contributionmargin | 11,800 | |
| Fixed expenses | 7,788 | |
| Net operatingincome | $ | 4,012 |
1. What is the contribution margin per unit?
2. What is the contribution margin ratio?
3. What is the variable expense ratio?
4. If sales increase to 1,001 units, what would be the increasein net operating income?
5. If sales decline to 900 units, what would be the netoperating income?
6. If the selling price increases by $1.60 per unit and thesales volume decreases by 100 units, what would be the netoperating income?
7. If the variable cost per unit increases by $.60, spending onadvertising increases by $1,100, and unit sales increase by 250units, what would be the net operating income?
8. What is the break-even point in unit sales?
9. What is the break-even point in dollar sales?
10. How many units must be sold to achieve a target profit of$7,906?
11a. What is the margin of safety in dollars?
11b. What is the margin of safety percentage?
12. What is the degree of operating leverage?
13. Using the degree of operating leverage, what is theestimated percent increase in net operating income of a 4% increasein sales?
14. Assume that the amounts of the companyâs total variableexpenses and total fixed expenses were reversed. In other words,assume that the total variable expenses are $7,788 and the totalfixed expenses are $13,900. Under this scenario and assuming thattotal sales remain the same, what is the degree of operatingleverage?
15. Assume that the amounts of the company's total variableexpenses and total fixed expenses were reversed. In other words,assume that the total variable expenses are $7,788 and the totalfixed expenses are $13,900. Given this scenario, and assuming thattotal sales remain the same, calculate the degree of operatingleverage. Using the calculated degree of operating leverage, whatis the estimated percent increase in net operating income of a 4%increase in sales?
