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

	Amount			Percent of Sales
Sales	$	133,000		100	%
Variable expenses		53,200		40	%
Contribution margin		79,800		60	%
Fixed expenses		24,000
Net operating income	$	55,800

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 16% increase in sales.

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

Income statement options:

• Administrative expenses
• Advertising
• Beginning merchandise inventory
• Commissions
• Cost of goods sold
• Depreciation
• Direct labor
• Direct materials
• Ending merchandise inventory
• Fixed expenses
• Indirect labor
• Indirect materials
• Purchases
• Sales
• Selling expenses
• Variable expenses