1. 2. What is the company's margin U 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 contribu tion format income statement follows: Required: Amount Percent of Sales $80,000 100% Sales 32,000 40% Variable expenses 48,000 60% Contribution margin 38,000 Fixed expenses. Net operating income $10,000 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 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.