Question
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
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.
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