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Exercise - Compute and Use the Degree of Operating Leverage
Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows:
Amount
Percent of Sales
Sales
$125,000
100%
Variable expenses
50,000
40%
Contribution margin
75,000
60%
Fixed expenses
16,000
Net operating income
$59,000
Required -
1. Compute the company's degree of operating leverage.
2. Using the degree of operating leverage, estimate the impact on net operating income of a 18% increase in sales.
3. Construct a new contribution format income statement for the company assuming a 18% increase in sales.
Computco sells high-end computer workstations. The demand for its workstations during a month follows a normal distribution, with a mean of 400 and standard deviation of 100.
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