Question - Eneliko Company installs home theater systems. The company's most recent monthly contribution format income statement appears below:
Amount Percent of Sales
Sales $ 120,000 100%
Variable expenses 84,000 70%
Contribution margin 36,000 30%
Fixed expenses 24,000
Net operating income $ 12,000
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 10% increase in sales.
3. Complete the new contribution format income statement for the company assuming a 10% increase in sales.