Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales 100% 40% 60% Amount $ 133,000 53,200 79,800 25,000 $ 54,800 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 24% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 24% 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:

= $79,800 / $54,800

= 1.46

2)

Increase in net operating income:

= 1.46 X 24

= 34.80%

Net operating income increases by 34.80%

3)

Sales	$164,920
Variable expense	$65,968
Contribution margin	$98,952
Fixed expense	$25,000
Net operating income	$73,952