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

Percentage of sales

Amount Sales $90000 %100 Variable expense $36000 40 ______________________________ Contribution Margin $54000 = 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 8% increase in unit sales.

3. Construct a new contribution format income statement for the company assuming a 8% increase in unit sales.