Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales 1001 401 601 Amount $ 80.000 32,000 48,000 38,000 $ 10,000 Sales Variable expenses Contribution margin Fixed expenses Net operating income 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 5% increase in sales 3. Construct a new contribution format income statement for the company assuming a 5% 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 1 decimal place.) Degree of operating leverage Required 2 >

Answer 1

Degree of operating leverage = Contribution Margin/Net operating income

= 48,000/10,000

= 4.8 times

2.Increase in operating income = % increase in sales*Degree of operating leverage

= 5%*4.8

= 24%

3.

	Amount	%
Sales	84000	100
Variable expenses	33600	40%
contribution margin	50400	60.00%
Fixed expenses	38000
net operating income	12400
% Increase In operating income	24.00%