Construct a new contribution format income statement
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
| Amount | Percent of Sales |
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| Sales | $ | 80,000 | 100 | % | |
| Variable expenses | 32,000 | 40 | % | ||
| Contribution margin | 48,000 | 60 | % | ||
| Fixed expenses | 38,000 | ||||
| Net operating income | $ | 10,000 | |||
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Required:
1. What is the company’s degree of operating leverage?
2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in unit sales.
3. Construct a new contribution format income statement for the company assuming a 5% increase in unit sales.
Solution:
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