Exercise 5-9 Compute and Use the Degree of Operating Leverage [LO5-8]

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

		Amount	Percent of Sales
Sales	$	125,000	100%
Variable expenses		50,000	40%
Contribution margin		75,000	60%
Fixed expenses		16,000
Net operating income	$	59,000

Required:
1.	Compute the companys degree of operating leverage. (Round your answer to 2 decimal places.)

2.	Using the degree of operating leverage, estimate the impact on net operating income of a 18% increase in sales. (Round your intermediate calculations to 2 decimal places. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).)

3.	Construct a new contribution format income statement for the company assuming a 18% increase in sales.