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 ncome statement follows Amount $143,000 57,200 Percent of Sales 100% 40% Sales Variable expenses 85,800 24,000 60% Contribution margin Fixed expenses Net operating income 61,800 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 12% 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

Explanation / Answer

1.DOL=Contribution/Net operating income

=(85800/61800)=1.39(Approx)

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

Hence net operating income would increase by=(1.39*12)=16.68%

3.

Sales(143000*1.12) $160160 Variable expenses(57200*1.12) $64064 Contribution margin $96096 Fixed expenses $24000 Net operating income $72096

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