Question

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

	Amount			Percent of Sales
Sales	$	124,000		100	%
Variable expenses		49,600		40	%
Contribution margin		74,400		60	%
Fixed expenses		15,000
Net operating income	$	59,400

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 19% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 19% increase in sales.

Answer 1