Bic Corporation's contribution format income statement for the most recent month follows:
Sales $121,000
Variable Expenses 60,500
Contributon Margin 60,500
Fixed Expenses 43,700
Net Operating Income $16,800
Required:
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from an 8% increase in sales. Prove your answer by preparing a new contribution format income statement, showing the new net operating income after the increase in sales.