EXERCISE 2-9 Compute and Use the Degree of Operating Leverage LO2-8Engberg Company installs lawn sod in home yards. The company's most recent monthly contribu-tion format income statement follows:Sales.Variable expensesContribution margin.Fixed expenses.Net operating incomeAmount$80,00032,00048,00038,000$10,000Percent of Sales100%40% Mejanaka60% googsgnal()della básinasidino MRequired: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 incomestatement for the company assuming a 5% increase in sales.xpo681@lenu maqo boziODO

Sales.. Variable expenses Contribution margin. Fixed expenses. Net operating income Amount $80,000 32,000 48,000 38,000 $10,000 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 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.

Sales.. Variable expenses Contribution margin. Fixed expenses. Net operating income Amount $80,000 32,000 48,000 38,000 $10,000 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 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.

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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Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following projected income statement: Sales $88,000 Total variable cost 23,760 Contribution margin $64,240 Total fixed cost 43,800 Operating income $20,440 Required: 1. Calculate the contribution margin ratio. Note: Enter as a percent, rounded to the nearest whole number. fill in the blank 1 % 2. Calculate the variable cost ratio. Note: Enter as a percent, rounded to the nearest whole number.fill in the blank 2 % 3. Calculate the break-even sales revenue for Ashton. Note: Round your answer to the nearest dollar. $fill in the blank 3 4. How could Ashton increase projected operating income without increasing the total sales revenue? Decrease the contribution margin ratio
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Total sales = $120,000. Contribution Margin = 40%. Segment Performance MArgin = 15%. Segment MArgin = 7%. Compute Traceable NOT Controllable Fixed Expenses ($s).
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