Engberg Company installs lawn sod in home yards. The company\'s most recent mont

Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount $143.000 57,200 Percent of Sales 100% 40% Sales Variable expenses 60% Contribution margin Fixed expenses 85,800 19,000 Net operating income $66,800 Required 1. Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.) gree of operating leverage 2, using the degree of operating leverage, estimate the impact on net operating income of a 13% 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).) Net operating income by 3, Construct a new contribution format income statement for the company assuming a 13% increase in sales. Engberg Company Contribution Income Statement Total

Explanation / Answer

1.DOL=Contribution margin/Net operating income

=(85800/66800)=1.28

2.DOL=% change in net operating income/% change in sales

Hence % change in net operating income=increase =(1.28*13)=16.64%

3.

Sales(143000*1.13) $161590 Variable expenses(57200*1.13) $64636 Contribution margin $96954 Fixed expenses $19000 net operating income 77954

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