Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. exercise 6-9 compute and use the degree of operati

Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO6-8] Engberg Company installs lawn sod in...

Free

80.2K

Verified Solution

Question

Accounting

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

Engberg Company installs lawn sod in home yards. The company’smost recent monthly contribution format income statementfollows:

AmountPercent of Sales
Sales$127,000100%
Variable expenses50,80040%
Contribution margin76,20060%
Fixed expenses23,000
Net operating income$53,200

Required:

1. What is the company’s degree of operating leverage?

2. Using the degree of operating leverage, estimate the impacton net operating income of a 16% increase in sales.

3. Construct a new contribution format income statement for thecompany assuming a 16% increase in sales.

Answer & Explanation Solved by verified expert
3.6 Ratings (281 Votes)

Solution

Degree of operating leverage = 1.43

If sales increase by 16% operating income will increase by 22.88%

Engberg Company
Contribution income statement
Amount
Sales revenue $      147,320.00
Variable costs $         58,928.00
Contribution margin $         88,392.00
Fixed cost $         23,000.00
Net Operating income $         65,392.00

Working

Degree of operating leverage = Contribution margin /Net operating income
Degree of operating leverage = 76200/53200
Degree of operating leverage =                        1.43

.

Operating leverage = Change in operating income / Change in sales
Change in operating income = Operating leverage x Change in sales
Change in operating income = 1.43 x 16%
Change in operating income = 22.88%

.
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Medical Sciences
1.2K views

Blood 1. If you separate whole blood in a centrifuge, what layers do you get? What is...

Biology
1.2K views

9. Find the restriction sites and "cut" the DNA in the sequence below. How many...

Basic Math
1.2K views

Carlos needs $8078 for a future project. He can invest $7000 now at an annual...

Basic Math
1.2K views

Commute Time to Work The average commute to work (one way) is 25 minutes according...

Basic Math
1.2K views

The letters r and ? epresent polar coordinates. Write the given equation using rectangular...

Calculus
1.2K views

6 12 Determine whether the given function is a solution of the differential equation 6...

Accounting
1.2K views

What information is not needed to perform a check spread? (Points : 4) Date Payee...

Accounting
1.2K views

Thank you! Please Show All Calculations UPDATE * Purchases are paid...

Accounting
1.2K views

Amortize Premium by Interest Method Shunda Corporation wholesales parts to appliance manufacturers. On January 1,...

Accounting
1.2K views

Which of the following is correct with respect to accounting treatment for research? Always capitalised,...

Finance
1.2K views

APPLE MARKET VALUE = $115.05 CALLS EXP DATE: DEC 4, 2020 PUTS LAST PRICE STRIKE...

Finance
1.2K views

Dee Trade opers a brokerage count and purchases 300 shares of internet Dreams at 540...