Q1) Engberg Company installs lawn sod in home yards. Company most newly monthly contribution format income statement follows:
| |
Amount |
Percent of Sales |
| Sales |
$80,000 |
100% |
| Less variable expanses |
32,000 |
40% |
| Contribution margin |
48,000 |
60% |
| Less fixed expenses |
38,000 |
|
| Net operating income |
$10,000 |
|
Questions:
1. Calculate company degree of operating leverage.
2. Using degree of operating leverage, evaluate impact on net income of 5% increase in sales.
3. Verify evaluation from part (2) above by creating new contribution format income statement for company suppose a 5% increase in sales.