ter 5 Engberg Company installs lawn sod in home yards. The company\'s most recen

ID: 2342567 • Letter: T

Question

ter 5 Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format Income statement foll monthly contribution format income statement foll s135,000 81,000 $58,000 100 54,000400 Contribution margin 60 1. What is the company's degree of 2 Using the degree of operating leverage, estimate the impact on net operating income of a 22% increase in sales. 3. Construct a new contri everage? ibution format income statement for the company assuming a 22% increase in sales. Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 What is the com

Explanation / Answer

Degree of operating leverage = Contribution margin / Net operating income

= $81,000 / $58,000

= 1.40 (rounded to 2 decimal places)

Degree of operating leverage of 1.40 imples that for every 1% increase in sales net operating income increases by 1.4%

Net operting income increases by 30.8% (1.4*22%)

Contribution format income sataement

Sales revenues

$164,700 [$135,000+($135,000*22%)]

Less : Variable expenses

$65,880 ($164,700*40%)

Contribution margin

$98,820

Less : Fixed expenses

$23,000

Net income

$75,820

Amount Percent of sales