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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 $ 80,000
Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows:
Amount | Percent of Sales | ||||
Sales | $ | 80,000 | 100 | % | |
Variable expenses | 32,000 | 40 | % | ||
Contribution margin | 48,000 | 60 | % | ||
Fixed expenses | 38,000 | ||||
Net operating income | $ | 10,000 | |||
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 5% increase in sales.
3. Construct a new contribution format income statement for the company assuming a 5% increase in sales.
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