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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 | $ | 127,000 | | 100 | % |
| Variable expenses | | 50,800 | | 40 | % |
| Contribution margin | | 76,200 | | 60 | % |
| Fixed expenses | | 23,000 | | | |
| Net operating income | $ | 53,200 | | | |
| |
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 16% increase in sales.
3. Construct a new contribution format income statement for the company assuming a 16% increase in sales.
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