KPR manufactures installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:  In Rs Amount Sales 80,000 Variable expenses 32,000 Contribution margin 48,000 Fixed expenses -38,000 Net operating income 10,000   Required: Compute the company’s degree of operating leverage. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in sales. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in sales.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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KPR manufactures installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
 In Rs
Amount

Sales
80,000

Variable expenses
32,000

Contribution margin
48,000

Fixed expenses
-38,000

Net operating income
10,000

 

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

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