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Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO6-8] Engberg Company installs lawn...

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Accounting

Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO6-8]

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

Amount Percent of Sales
Sales $ 127,000 100 %
Variable expenses 50,800 40 %
Contribution margin 76,200 60 %
Fixed expenses 23,000
Net operating income $ 53,200

Required:

1. What is the companys degree of operating leverage?

2. Using the degree of operating leverage, estimate the impact on net operating income of a 16% increase in sales.

3. Construct a new contribution format income statement for the company assuming a 16% increase in sales.

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