Exercise 5-9 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	$	145,000	100%
Variable expenses		58,000	40%
Contribution margin		87,000	60%
Fixed expenses		23,000
Net operating income	$	64,000

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

Degree of operating leverage

2.	Using the degree of operating leverage, estimate the impact on net operating income of a 15% increase in sales. (Input the amount as a positive value. Round your intermediate calculations and final answers to 2 decimal places.)

Net operating income (Click to select)increasesdecreases by

%

3.	Construct a new contribution format income statement for the company assuming a 15% increase in sales. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Contribution Income Statement
	Total
(Click to select)Fixed expensesSalesNet operating income (loss)Variable expensesContribution margin	$
(Click to select)Net operating income (loss)Contribution marginSalesFixed expensesVariable expenses
(Click to select)SalesFixed expensesNet operating income (loss)Variable expensesContribution margin
(Click to select)SalesVariable expensesNet operating income (loss)Fixed expensesContribution margin
(Click to select)SalesNet operating income (loss)Contribution marginFixed expensesVariable expenses	$