Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 90,000 100% Variable expenses 36,000 40 Contribution margin 54,000 60% Fixed expenses 41,400 Net operating income $ 12,600
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 90,000 100% Variable expenses 36,000 40 Contribution margin 54,000 60% Fixed expenses 41,400 Net operating income $ 12,600
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
| Amount | Percent of Sales | |
|---|---|---|
| Sales | $ 90,000 | 100% |
| Variable expenses | 36,000 | 40 |
| Contribution margin | 54,000 | 60% |
| Fixed expenses | 41,400 | |
| Net operating income | $ 12,600 |
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 7% increase in unit sales.
3. Construct a new contribution format income statement for the company assuming a 7% increase in unit sales.
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