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	$	146,000		100	%
Variable expenses		58,400		40	%
Contribution margin		87,600		60	%
Fixed expenses		17,000
Net operating income	$	70,600

Required:

1. What is the company’s degree of operating leverage?

What is the company’s degree of operating leverage? (Round your answer to 2 decimal places.)

Degree of operating leverage

2.

Using the degree of operating leverage, estimate the impact on net operating income of a 20% 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).)

Net operating income

by

%

3. Using the degree of operating leverage, estimate the impact on net operating income of a 20% increase in sales.

Construct a new contribution format income statement for the company assuming a 20% increase in sales.

Engberg Company
Contribution Income Statement
	Amount	Percent of Sales
			%
			%
			%

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.