Question

Check my work Engberg Company installs lawn sodin home yards. The company's most recent monthly contribution format income statement follows Te cunt - HP --- 52,89 Percent of Sales 17 , Variable expenses Contribution in Fixed expenses Net Coerating Income 23,989 Required 1 What is the company's degree or onerating leverage z Using the degree of operating leverage. estimate the impact on net operating income of a 23% increase in sales 3 Construct a new contribution format income statement for the company assuming a 23% increase in sales Complete this questi entering your answers in the tabs below.

Answer 1

The formula is

a.

Degree of Operating Leverage = (Sales – Variable cost) / (Sales – Variable cost– Fixed cost )

So, Degree of operating leverage = (130000 - 52000) / (130000 - 52000 -23000 )

ie., = 1.42

b,c .

D.O.L => Percentage change in Operating Profits / Percentage change in sales

1.42 = Percentage change in Operating Profits / 0.23

So, Percentage change in Operating Profits = 0.3262 or 32.62%

So, New Operating Profits => 55000 * (1.3262) = 72941.

Income Statement

Sales	130000*123/100	159900
Variable Cost	52000*123/100	63960
Contribution		95940
Fixed Costs	Constant	23000
Operating Profits		72940