Reference no: EM132548559

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                                         $80,000              100%

Variable Expenses                         32,000               40%

Contribution                                 48,000              60%

Fixed Expenses                             38,000

Net Operating Income                     $10,000

Question 1: Compute the company's degree of operating Leverage.

Question 2: Using the degree of operating leverage, estimate the impact on net operating income of 5% increase of sales.

Question 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.