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

Question

Help Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement foll Percen Amount $127,000 50,800 Contribution margin 76,200 Fixed expenses16,000 Net operating income % 60,200 Sale 100% 40% 60% Sales Variable expenses Required: 1. What is the company's degree of operating leverage? 2 Using the degree of operating leverage, estimate the impact on net operating income of a 29% increase in sales 3. Construct a new contribution format income statement for the company assuming a 29% increase in sales. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the company's degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating

Explanation / Answer

1) Calculation of degree of operating leverage: Degree of operating leverage= Contribution margin/ net operating income                                                            = 76200/60200 =1.27 Degree of operating leverage is 1.27 2) Calculation of impact on net operating income: Degree of operating leverage=Percentage Change in operating income/ Percentage change in sales 1.27= Percetage change in operating income/ 29% Percentage change in operating income= 1.27*29%=36.83% Therefore there is 36.83% increase in net operating income 3) Contribution format income statement: Particulars Total Percent of sales Sales(127000*1.29) 1,63,830 100% Variable cost(50800*1.29) 65,532 40% Contribution margin(Sales - Variable Cost) 98,298 60% Fixed expenses 16,000 Net operating income 82,298

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