Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:bre27076_ch06_256-305.indd 292 7/14/09 11:44:37 PMAmount Percent of SalesSales ............................................ $80,000 100%Variable expenses ....................... 32,000 40%Contribution margin ..................... 48,000 60%Fixed expenses ........................... 38,000Net operating income .................. $10,000Required:1. Compute the company’s degree of operating leverage.2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increasein sales.3. Verify your estimate from part (2) above by constructing a new contribution format income statementfor the company assuming a 5% increase in sales.
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
bre27076_ch06_256-305.indd 292 7/14/09 11:44:37 PM
Amount Percent of Sales
Sales ............................................ $80,000 100%
Variable expenses ....................... 32,000 40%
Contribution margin ..................... 48,000 60%
Fixed expenses ........................... 38,000
Net operating income .................. $10,000
Required:
1. Compute 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.
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