Question

2.00 points Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution formatincome Sales Variable expenses Contribution margin Fixed expenses Net operating income Amount of Sales 49,200 3,800 19,000 54,800 $ 123,000 100% 40% 60% Required: 1. Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.)

Answer 1

Part 1) degree of operating leverage = contribution margin/ net operating income

= $73800/$54800 = 1.35

Part 2)

Estimated percent change in net operating income =

1.3467 × 27% = 36.36%

Part 3)

Sales (123000 × 1.27)	$156210
Variable expenses ( 49200 × 1.27)	($62484)
Contribution margin	$93726
Fixed expense	($19000)
Net operating income	$74726
Original net operating income	$54800

Percent change in net operating income = ($74726-$54800)/54800 = 36.36%

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