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

	Amount			Percent of Sales
Sales	$	131,000		100	%
Variable expenses		52,400		40	%
Contribution margin		78,600		60	%
Fixed expenses		19,000
Net operating income	$	59,600

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 20% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 20% increase in sales.