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

Required:
1. Compute the company's degree of operating leverage.
2. Using the degree of operating leverage, estimate the impact on operating income of a 5% increase in sales.
3. Verify your estimate from (2) above by constructing a new contribution format income statement for the company, assuming a 5% increase in sales.

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Sales ... Variable expenses. Contribution margin. Fixed expenses Operating income. Amount Percentage of Sales $80,000 32,000 48,000 38,000 $10,000 100% 40% 60%