Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format incomestatement follows:SalesVariable expensesContribution marginFixed expensesNet operating incomeAmount$ 88,00035,20052,80041,360$ 11,440.Percent ofSales100%40%60%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 6% increase in unit sales.3. Construct a new contribution format income statement for the company assuming a 6% increase in unit sales.

The contribution format income statement shows how variations in sales volume impact a company's…

Engberg Company installs lawn sod in home yards. The company's most re statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income. Amount $ 88,000 35,200 52,800 41,360 $ 11,440 Percent of Sales 100% 40% 60%

Engberg Company installs lawn sod in home yards. The company's most re statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income. Amount $ 88,000 35,200 52,800 41,360 $ 11,440 Percent of Sales 100% 40% 60%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income
statement follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Amount
$ 88,000
35,200
52,800
41,360
$ 11,440.
Percent of
Sales
100%
40%
60%
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 6% increase in unit sales.
3. Construct a new contribution format income statement for the company assuming a 6% increase in unit sales.

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