EXERCISE 4-8 Compute and Use the Degree of Operating Leverage (LO8] Entergo Company installs home theatre systems. The company's most recent monthly contri- bution format income statement appears below: Sales......... Variable expenses.. Contribution margin... Fixed expenses Operating income. Amount $120,000 84000 36,000 24,000 $ 12.000 Percentage of Sales 100% 70% 30% 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 10% increase in sales. 3. Verify your estimate from (2) above by constructing a new contribution format income statement for the company, assuming a 10% increase in sales. EXERCISE 4-16 Break-Even and Target Profit Analysis (LO4, LOS, LO6] Bait-N-Tackle sells fishing equipment. One of the company's products, a basic tackle box, sells for $48 per unit. Variable expenses are $36 per tackle box, and fixed expenses associated with the tackle box total $18,000 per month. Required: 1. Compute the company's break-even point in number of tackle boxes and in total sales dollars. 2. If the variable expenses per tackle box increase as a percentage of the selling price, will it result in a higher or a lower break-even point? Why? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 2,600 tackle boxes per month. The sales manager is convinced that a 12.5% reduction in the selling price will result in a 20% increase in the number of tackle boxes sold each month. Prepare two contribution income statements, one under current operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements