Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows.
1 answer:
Using the degree of operating leverage, the estimated impact on net operating income of a 5 % increase in sales is 6.45%.
The degree of operating leverage (DOL) measures how much a company's operating income varies in response to sales fluctuations.
The DOL ratio assists analysts in determining how changes in sales affect company earnings.
Because a company with high operating leverage has a high proportion of fixed costs, a significant increase in sales can result in significant changes in profits.
If sales increase by 5%, the calculation for increased Net Operating Income is as follows:
Increase in Net Operating Income = Sales Increase x Degree of Operating Leverage
= 5% x 1.29
= 6.45%
Hence, Using the degree of operating leverage, estimated impact on net operating income of a 5 % increase in sales is 6.45%.
Learn more about operating leverage:
#SPJ4
You might be interested in
Answer:
a) 500F and 3,000U
the company use a cheaper material thus, favorable price variance.
But this material had lower quality thus, negative quantity variance
b) 4,000U 2,100U
There was overtime thus, making labor rate higher and productivity as the shift are longer, decrease.
It could also be a combination between wrong directives from the supervisor or defective equipment
Explanation:
DIRECT MATERIALS VARIANCES
std cost $ 1.50
actual cost $ 1.48
quantity 25,000 (amount purchased)
difference $0.02
price variance $500.00
std quantity 18000 (3,000 toys produced x 6 per toy)
actual quantity 20000 (25,000 - 5,000 ending inventory)
std cost $1.50
difference -2000.00
quantity variance $(3,000.00)
DIRECT LABOR VARIANCES
std rate $21.00
actual rate $22.00 (88,000 labor cost / 4,000 direct labor hours)
actual hours 4,000
difference $(1.00)
rate variance $(4,000.00)
std hours 3900.00 (3,000 toys x 1.3 hours per toy)
actual hours 4000.00
std rate $21.00
difference -100.00
efficiency variance $(2,100.00)