Question

Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 80,000 100% Variable expenses 32,000 40% Contribution margin 48,000 60% Fixed expenses 38,000 Net operating income $ 10,000 Required: 1. What is the company’s degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 5% increase in unit sales.

Answer 1

Net operating income $ 10,000

What is Net operating income?

Earnings before interest and taxes (EBIT) is a measure of a company's profit that includes all income and expenses except interest and income tax expenses.

The net operating income formula is calculated by subtracting a property's operating expenses from its total revenues. As previously stated, revenues include more than just rental income. This includes all income generated by a piece of real estate.

Operating profit represents a company's earnings after deducting all expenses except debt service, taxes, and certain one-time items. Net income, on the other hand, is the profit left over after deducting all costs incurred during the period from revenue generated from sales.

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