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Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 90,000

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

Amount Percent of Sales
Sales $ 90,000 100%
Variable expenses 36,000 40%
Contribution margin 54,000 60%
Fixed expenses 40,500
Net operating income $ 13,500

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 6% increase in unit sales.
  3. Construct a new contribution format income statement for the company assuming a 6% increase in unit sales.

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