Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount $ 137,000 54,800 Percent of Sales 100% 403 608 Sales Variable expenses Contribution margin Fixed expenses Net operating income 82,200 19,000 $ 63,200 Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 28% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 28% increase in sales. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the company's degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage

Answer 1

1) Degree of Operating leverage is = Contribution margin/Net operating income Degree of Operating leverage is = (82200/63200) Degree of Operating leverage is = 1.30 Times 2) Impact of net operating income is = Degree of operating levergae"Increase in sales Impact of net operating income is = (1.30-28%) Impact of net operating income is = 36.40% Amount $ 1,75,360 3) New contribution format income statement- Particulars Sales (137000*128%) Less: Variable expenses @40% Contribution margin Less: Fixed expenses Net operating income 70,144 1,05,216 19,000 86,216