Eneliko Company installs home theater systems. The company’s most recent monthly
ID: 2337318 • Letter: E
Question
Eneliko Company installs home theater systems. The company’s most recent monthly contribution format income statement appears below: Amount Percent of Sales Sales $ 123,000 100% Variable expenses 49,200 40% Contribution margin 73,800 60% Fixed expenses 24,000 Net operating income $ 49,800 Required: 1. Compute the company’s degree of operating leverage. (Round your answer to 2 decimal places.) Degree of operating leverage 2. Using the degree of operating leverage, estimate the impact on net operating income of a 16% increase in sales. (Input the amount as a positive value. Round your intermediate calculations and final answers to 2 decimal places.) Net operating income by % 3. Construct a new contribution format income statement for the company assuming a 16% increase in sales. (Input all amounts as positive values except losses which should be indicated by a minus sign.) Contribution Income Statement Total $ $
Explanation / Answer
1.
Degree of operating leverage = Contribution margin / Net operating income
= $73,800 / $49,800
= 1.48 times
2.
A degree of operating leverage of 1.48 implies that for every 1% increase in sales will result in a 1.48%(1.48*1%) increase in net operating income.
16% increase in sales results in 23.68% (1.48*16%) increase in net operating income.
Net operating income increase by 23.68%.
3.
Contribution format income statement
Sales [$123,000+($123,000*16%)] $142,680 Variable expenses ($142,680*40%) $57,072 Contribution margin $85,608 Fixed expenses $24,000 Net operating income $61,608Related Questions
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