EXERCISE 59 Compute and Use the Degree of Operating Leverage [LO8] Eneliko Company installs home theater systems. The companys most recent monthly contribution format income statement appears below:

	Amount	Percent Of Sales
Sales	120,000$	100%
Variable Expense	84,000$	70%
Contribution Margin	36,000$	30%
Fixed Expense	24,000$

Net Operating Income 12,000$

Required:

1. Compute the companys degree of operating leverage.

2. Using the degree of operating leverage, estimate the impact on net operating income of a 10% increase in sales.

3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 10% increase in sales.