Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO6-8]

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

	Amount			Percent of Sales
Sales	$	141,000		100	%
Variable expenses		56,400		40	%
Contribution margin		84,600		60	%
Fixed expenses		15,000
Net operating income	$	69,600

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 19% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 19% increase in sales.