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Compute the company degree of operating leverage

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Reference no: EM131582066

Exercise - Compute and Use the Degree of Operating Leverage

Engberg Company installs lawn sod in home yards. The company's 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 company's degree of operating leverage.

2. Using the degree of operating leverage, estimate the impact on net operating income of a 18% increase in sales.

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

Reference no: EM131582066

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