Question

The following income statement was drawn from the records of Baird Company, a merchandising firm: BAIRD COMPANY Income Statement For the Year Ended December 31, Year 1 Sales revenue (7,000 units X $168) Cost of goods sold (7,000 units X $81) Gross margin Sales commissions (5% of sales) Administrative salaries expense Advertising expense Depreciation expense Shipping and handling expenses (7,000 units X $4) Net income $1,176,000 (567,000) 609,000 (58, 800) (80,000) (37,000) (49,000) (28,000) $ 356,200 Required 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 Baird will earn if sales increase by 20 percent.

Answer 1

Baird compay Income Slalomell- foo te xar orded December 31, vari Sales MP1, 176.000 less. variable costs 567.000 Cost of goods sold 58.800 sceles commission 28000 Shipping & hard ling expenses Contribution margin 522,200 AFC Administrative expense 80,000 adr expense 37000 Depreciation exp 49000 nelencone 356,200 6. Ner Pocome will be of $763,405 if scoles increase 207. Explanalton vorable vcarable cost 81 unt cost +36 Scales commission C168x204.) tu shipping & handlinger, 118.6 total varable cosla 118.6x 7000 = $ 830 200 variable cos/- b. Opedaling levodage - Contáballon margen poost -) 522,200/356.260 - I-H66 C. 207. Increase Pn Devenue will increase the net income by214 •67. 356,200 x 214-6%. = 764,405