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Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...

Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:

Amount Percent of Sales
Sales $ 120,000 100 %
Variable expenses 48,000 40 %
Contribution margin 72,000 60 %
Fixed expenses 22,000
Net operating income $ 50,000

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 23% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 23% increase in sales.

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