Exercise 5-9 (Algo) Compute and Use the Degree of Operating Leverage [LO5-8]

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

	Amount	Percent of Sales
Sales	$ 150,000	100%
Variable expenses	60,000	40
Contribution margin	90,000	60%
Fixed expenses	23,000
Net operating income	$ 67,000

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 15% increase in unit sales.

3. Construct a new contribution format income statement for the company assuming a 15% increase in unit sales.