Engberg Company installs lawn sod in home yards.

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

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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