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

AmountPercent of SalesSales$148,000100%Variable expenses59,20040%Contribution margin88,80060%Fixed expenses24,000Net operating income$64,800

Required:

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

2. Using the degree of operating leverage, estimate the impact on net operating income of a 16% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 16% increase in sales.