Engberg Company installs lawn sod in home yards. The company’s most recent month

Question

Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:


       Amount   Percent
of Sales
Sales   $   139,000     100%   
Variable expenses      55,600     40%   
   
Contribution margin      83,400     60%   
Fixed expenses      18,000    
   

Net operating income   $   65,400       
   



Required:
1.  
Compute the company’s degree of operating leverage. (Round your answer to 2 decimal places.)
      

2.  
Using the degree of operating leverage, estimate the impact on net operating income of a 23% 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).)
      


3.  
Construct a new contribution format income statement for the company assuming a 23% increase in sales.
      

Garrison 15e Recheck 2014-12-17
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Explanation / Answer

Hi,

The correct answers are as follows:

1. degree of operating leverage = (139000-55600)/65400

1.28

--------

2. Change in operating income = 1.28*23%

29.44%

---------

3.

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