Exercise 5-9 Compute and Use the Degree of Operating Leverage [LO5-8] Engberg Co

Question

Exercise 5-9 Compute and Use the Degree of Operating Leverage [LO5-8]

Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:

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 16% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 16% increase in sales.

I was able to get Required 1 & 2, but i need help with the Required 3 portion.

Percent of Sales 100% 40% 60% Amount Sales Variable expenses Contribution margin Fixed expenses Net operating income 139,000 55,600 83,400 22,000 $61,400

Explanation / Answer

Amount % of Sales Sales (139000*1.16)=$161,240 100% Variable expenses (55600*1.16)=$64496 40% Contribution margin $96744 60% Fixed expenses 22000 Net operating income $74744.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---