Question

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 Construct a new contribution format income statement for the company assuming a 28% increase in sales. Engberg Company Contribution Income Statement Amount Percent of Sales 00% Required 2 Required 3 >

Answer 1

1) Amount Percent of Sales Selling Price 149000 100% Varaible Cost 59600 40% Contribution Margin 89400 60% Fixed cost 19000 Net operating income 70400 Degree of Operating Leverage Contibution Margin /Operating income Degree of Operating Leverage (89400/70400) 1.27 2) Increase in operating income if sales are increased by 28% (28%*1.27) Net operatatin income Increased by 35.56% Contribution Income Statement Total Percent of Sales Selling Price 190720 100% Varaible Cost 76288 40% Contribution Margin 114432 60% Fixed cost 19000 Net operating income 95432