Determine the company degree of operating leverage

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Reference no: EM1311491

Determine and Use the Degree of Operating Leverage.

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

	Amount	Percent of Sales
Sales	$80,000	100%
Less variable expanses	32,000	40%
Contribution margin	48,000	60%
Less fixed expenses	38,000
Net operating income	$10,000

Required:

1. Compute the company degree of operating leverage.
2. Using the degree of operating leverage, estimate the impact on net income of a 5% increase in sales.
3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in sales.

Reference no: EM1311491

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