Question

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

   

		Amount	Percent of Sales
Sales	$	136,000	100%
Variable expenses		54,400	40%
Contribution margin		81,600	60%
Fixed expenses		24,000
Net operating income	$	57,600

   

Required:
1.	Compute the company’s degree of operating leverage. (Round your answer to 2 decimal places.)

     

2.	Using the degree of operating leverage, estimate the impact on net operating income of a 29% 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).)

        

3.	Construct a new contribution format income statement for the company assuming a 29% increase in sales.

     

Answer 1

1)	Company's degree of operating leverage
	contribution/net income
	81600/57600
	1.42
2)	Net income will increase by
	1.42*29
	41.08	%
3)	Contribution income statement
	sales (136000*129%)=				175440
	variable expense (54400*129%)				70176
	Contribution				105264
	fixed expense				24,000
	Net income				81,264