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 Percent Amount of Sales 149,000 Sales Variable expenses 100% 59,600 40% Contribution Fixed expenses 21,000 Net operating $68,400 89,400 60% margin income Required 1. Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.) Degree of operating everage 2. Using the degree of operating leverage, estimate the impact on net operating income of a 29% 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 ncome by 3. Construct a new contribution format income statement for the company assuming a 29% increase in sales Engberg Company Contribution Income Statement Total

Explanation / Answer

1. Degree of Operating Leverage = Contribution Margin / Operating Income

= $ 89,400 / $ 68,400

= 1.31

2.

Net Income increase by = 1.31*29% *100

= 37.99%

Hence the correct answer is

3.

Note :

Sales = $ 149,000 *129%

Variable Expense = Sales * 40%

Net Operating Income increases by 37.99%

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