Eneliko Company installs home theater systems. The company’s most recent monthly

Exercise 5-9 Compute and Use the Degree of Operating Leverage [LO8]

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.

Degree of operating leverage

3

2.	Using the degree of operating leverage, estimate the impact on net operating income of a 10% increase in sales. (Input the amount as a positive value. Omit the "%" sign in your response.)

Net operating income increases  by

30  %

3.	Complete the new contribution format income statement for the company assuming a 10% increase in sales. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Contribution Income Statement
	Total
Sales	$ 132,000
Variable expenses	92,400
Contribution margin	39,600
Fixed expenses	24,000
Net operating income (loss)	$ 15,600