Question

Could someone please help me answer this question? Thank you in advance.
Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales 100% 40% Amount $ 126,000 50,400 75,600 16,000 $ 59,600 Sales Variable expenses Contribution margin Fixed expenses Net operating income 60% 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 14% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 14% 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 < Required 1 Required 2 >

Answer 1

1) Degree of operating leverage

= Contribution Margin /Operating Income

= 75600/59600

=1.27

2) Increase In operating income if sales are increased by 14%

= net operating income will increase by (14*1.27) 17.78%

3)

particulars	Amount	percent of Sales
Sales	143,640	100%
Less: Variable cost	57,456	40%
Contribution	87,184	60%
Less: FIxed Cost	16,000
operating Income	70,184