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

Amount $ Percent of Sales

sales 125,000 100%

Varible Expenses 50,000 40%

Contribution Margin 75,000 60%

Fixed Expenses 20,000

Net operating income $55,000

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.