Eneliko Company installs home theater systems. The company’s most recent monthly

Question

Eneliko Company installs home theater systems. The company’s most recent monthly contribution format income statement appears below:

   

Compute the company’s degree of operating leverage. (Round your answer to two decimal places.)

Using the degree of operating leverage, estimate the impact on net operating income of a 29% increase in sales. (Round your intermediate calculation to 2 decimal places and round your percentage value to two decimal places.)

         

Construct a new contribution format income statement for the company assuming a 29% increase in sales.

Eneliko Company installs home theater systems. The company’s most recent monthly contribution format income statement appears below:

Explanation / Answer

Answer 1

Degree of Opertaing Leverage => ( Sales - Variable Cost) / ( Sales - Variable Cost - Fixed Cost)

Degree of Opertaing Leverage => (131000 - 52400 ) / ( 131000 - 52400 - 18000) => 1.29 or 1.30

Answer 2

In response to a 29% increase sales, operating income will increase by 37.7% [=1.3 * 29%]

Answer 3

PArticulars Amount ($) % Sales 168990 100% Variable Cost 67596 40% Contribution 101394 60% Fixed Cost 18000 Operating Income 83394

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