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

Amount Percent of Sales

Sales $ $88,000100\%$

Variable expenses $35,20040\%$

Contribution margin $52,80060\%$

Fixed expenses $40,480$

Net operating income $ $12,320$

Required:

What is the company$$s degree of operating leverage?

Using the degree of operating leverage, estimate the impact on net operating income of a $5\%$ increase in unit sales.

Construct a new contribution format income statement for the company assuming a $5\%$ increase in unit sales.