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

	Amount			Percent of Sales
Sales	$	145,000		100	%
Variable expenses		58,000		40	%
Contribution margin		87,000		60	%
Fixed expenses		22,000
Net operating income	$	65,000

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 27% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 27% increase in sales.