Question
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
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.
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