Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Amount $ 149,000 59,600 Percent of Sales 100% 40% 60% Contribution margin Fixed expenses 89,400 18,000 Net operating income $ 71,400 Required: 1. Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.) Degree of operating leverage 2. Using the degree of operating leverage, estimate the impact on net operating income of a 28% increase in sales. (Round your intermediate calculations to 2 decimal places. Round your percentage answer to 2 decimal places (i.e.1234 should be entered as 12.34).) Net operating income by 3. Construct a new contribution format income statement for the company assuming a 28% increase in sales Engberg Company Contribution Income Statement Total

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Answer 1

Amount Percent of Sales Selling Price Varaible Cost Contribution Margin 149000 100% 59600 40% 89400 60% Fixed cost 18000 Net operating income 71400 Degree of Operating Leverage 1) Contibution Margin /Operating income Degree of Operating Leverage(89400/71400) Increase in operating income if sales are increased by 28% 1.25 2) (28%*1.25) 35.00% Net operatatin income Increased by Contribution Income Statement 3) Total Percent of Sales Selling Price Varaible Cost Contribution Margin Fixed cost 190720 100% 76288 40% 60% 114432 18000 Net operating income 96432