Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 149,000 100 % Variable expenses 59,600 40 % Contribution margin 89,400 60 % Fixed expenses 20,000 Net operating income $ 69,400 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 an 18% increase in sales.

3. Construct a new contribution format income statement for the company assuming an 18% increase in sales.