Amount Percent of Sales 100% 40% Sales ..... Variable expenses Contribution margin Fixed expenses.. Net operating income $80,000 48,000 38,000 60% $10,000
Amount Percent of Sales 100% 40% Sales ..... Variable expenses Contribution margin Fixed expenses.. Net operating income $80,000 48,000 38,000 60% $10,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Compute and Use the Degree of Operating Leverage
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution formal income statement follows:
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 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.
Transcribed Image Text:Amount Percent of Sales
100%
40%
Sales .....
Variable expenses
Contribution margin
Fixed expenses..
Net operating income
$80,000
48,000
38,000
60%
$10,000
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