Compute and Use the Degree of Operating Leverage [L05-8] Engberg Company install

Question

Compute and Use the Degree of Operating Leverage [L05-8] Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.) Using the degree of operating leverage, estimate the impact on net operating income of a 28% increase in sales (Round your intermediate calculations to 2 decimal places. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).)

Explanation / Answer

= 84600/64600

= 1.31

Degree of Operating Leverage = % change in Operating income / % change in sales

1.31 = % change in operating income /0.28

% change in operating income = 36.68%

Degree of operating leverage = contribution margin/ operating income

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