Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows: Amount Percent of Sales

Sales $ 80,000 100%

Variable expenses 32,000 40%

Contribution margin 48,000 60%

Fixed expenses 38,000

Net operating income $ 10,000 222

Required: 1. What is the companys degree of operating leverage?

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

3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in unit sales.