Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in sales. Show the effect of DOL using the graph with an interpretation within 180 words.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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...
$80,000
32,000
100%
Variable expenses
40%
Contribution margin
Fixed expenses..
48,000
38,000
60%
Net operating income .
$10,000
Requirements:
Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in
sales. Show the effect of DOL using the graph with an interpretation within 180 words.
Transcribed Image Text:Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount Percent of Sales Sales... $80,000 32,000 100% Variable expenses 40% Contribution margin Fixed expenses.. 48,000 38,000 60% Net operating income . $10,000 Requirements: Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in sales. Show the effect of DOL using the graph with an interpretation within 180 words.
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