Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 135,000 100 % Variable expenses 54,000 40 % Contribution margin 81,000 60 % Fixed expenses 23,000 Net operating income $ 58,000

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 unit sales.

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