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

On October 1, Natalie King organized Real Solutions, a new consulting firm. On October 31, the company's records show the following items and amounts.

Exercise 1-16 Preparing a balance sheet L.O. P2

On October 1, Natalie King organized Real Solutions, a new consulting firm. On October 31, the company's records show the following items and amounts.

Cash	$	2,000		Cash dividends	$	3,360
Accounts receivable		19,000		Consulting fees earned		21,000
Office supplies		4,250		Rent expense		3,780
Land		36,000		Salaries expense		8,400
Office equipment		28,000		Telephone expense		660
Accounts payable		7,500		Miscellaneous expenses		680
Common stock		77,630

Using the above information prepare an October 31 balance sheet for Real Solutions. (Be sure to list the assets and liabilities in order of their liquidity. Omit the "$" sign in your response.)

REAL SOLUTIONS Balance Sheet October 31
Assets
Cash	$ 2,000
Accounts receivable	19,000
Office supplies
Land
Office equipment
Total Assets	$ 89,250
Liabilities
Accounts payable	$ 7,500
Equity
Common stock	77,630
Retained earnings	4,120
Total equity	81,750
Total Liabilities and Equity	$ 89,250

Explanation:

REAL SOLUTIONS Income Statement For Month Ended October 31
Revenues:
Consulting fees earned				$	21,000
Expenses:
Salaries expense	$	8,400
Rent expense		3,780
Miscellaneous expenses		680
Telephone expense		660
Total expenses					13,520
Net income				$	7,480

REAL SOLUTIONS Statement of Retained Earnings For Month Ended October 31
Retained earnings, Oct. 1	$	0
Add: Net income		7,480
		7,480
Less: Cash dividends		3,360
Retained earnings, Oct. 31	$	4,120