ngberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 94,000 100% Variable expenses 37,600 40 Contribution margin 56,400 60% Fixed expenses 43,240 Net operating income $ 13,160 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 unit sales. 3. Construct a new contribution format income statement for the company assuming a 5% increase in unit sales.
ngberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 94,000 100% Variable expenses 37,600 40 Contribution margin 56,400 60% Fixed expenses 43,240 Net operating income $ 13,160 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 unit sales. 3. Construct a new contribution format income statement for the company assuming a 5% increase in unit sales.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
| Amount | Percent of Sales | |
|---|---|---|
| Sales | $ 94,000 | 100% |
| Variable expenses | 37,600 | 40 |
| Contribution margin | 56,400 | 60% |
| Fixed expenses | 43,240 | |
| Net operating income | $ 13,160 |
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 unit sales.
3. Construct a new contribution format income statement for the company assuming a 5% increase in unit sales.
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