Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Percent of Sales Amount Sales $145,000 100% Variable expenses 40% 58,000 Contribution margin 60 % 87,000 Fixed expenses 15,000 72,000 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 26% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 26% 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

Answer 1

1.21 Amount Percent of Sales Selling Price 145000 100% Varaible Cost 58000 40% Contribution Margin 87000 60% Fixed cost 15000 Net operating income 72000 Degree of Operating Leverage Contibution Margin /Operating income Degree of Operating Leverage (87000/72000) Increase in operating income if sales are increased by 26% (21%*1.38) Net operatatin income Increased by 31.46% Contribution Income Statement Percent of Sales Selling Price 182700 100% Varaible Cost 73080 40% Contribution Margin 109620 60% Fixed cost 15000 Net operating income 94620 3) Total Sales