Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format incomestatement follows:SalesVariable expensesContribution marginFixed expensesNet operating incomeAmount$ 88,00035,20052,80041,360$ 11,440.Percent ofSales100%40%60%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 6% increase in unit sales.3. Construct a new contribution format income statement for the company assuming a 6% increase in unit sales.

The contribution format income statement shows how variations in sales volume impact a company's…

Engberg Company installs lawn sod in home yards. The company's most re statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income. Amount $ 88,000 35,200 52,800 41,360 $ 11,440 Percent of Sales 100% 40% 60%

Engberg Company installs lawn sod in home yards. The company's most re statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income. Amount $ 88,000 35,200 52,800 41,360 $ 11,440 Percent of Sales 100% 40% 60%

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 5EB: Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90....

See similar textbooks

Related questions

Q: a. Prepare a differential analysis dated October 1 to determine whether to continue with…

A: Differential Analysis: Differential analysis is the process of comparing and contrasting the costs…

Q: ed, then bank payable is 5 years?

A: As given in the problem, there is a bank loan of Php 300,000 that is payable in 5 years.In the…

Q: Haley, a CA CPA, is a manager with the firm Avis & Dorris, CPAs. Haley is involved primarily with…

A: The AICPA (American Institute of Certified Public Accountants) is a professional organization for…

Q: Product Profitability Analysis Galaxy Sports Inc. manufactures and sells two styles of All Terrain…

A: MARGINAL COSTING INCOME STATEMENTMarginal Costing Income Statement is one of the Important Cost…

Q: Problem 11-19 (Algo) (LO 11-9) Surat Limited paid cash to acquire an aircraft on January 1, 2020, at…

A: Depreciation is the reduction in the value of asset due tonormal wear and tearEffluxion of…

Q: Hemlock Nutritional Supplements (HNS) provides you with the following accounting records on…

A: Cost is the amount of money spent by the entity on the production and selling of the goods. It is…

Q: George Corporation has a defined benefit pension plan for its employees. The following information…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Current Attempt in Progress Large increases in inventory may cause an error in calculating the…

A: Cash flow statement means the statement which shows the cash inflow and outflow during the specified…

Q: On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $7,840…

A: Investment in Associates and Joint venture and Subsidiary Equity Accounting method - This method is…

Q: The actual information pertains to the third quarter. As part of the budgeting process, the Duck…

A: Flexible budget is that type of budget which changes along with change in sales activity level. This…

Q: The following information was obtained from the records of Alben Traders, a partnership business…

A: A partnership is when individuals or entities team up, combining their resources and efforts to…

Q: iv) Calculate Calculate v) vi) Calculate the cash flow from assets net capital spending change in…

A: Since you have posted a question with multiple sub parts, we will be able to provide the solution…

Q: Hannam Co. decided to change from the declining-balance method of depreciation to the straight-line…

A: Retained earnings means the amount of money retained by the entity out of profits rather than paying…

Q: Hoi Chong Transport, Limited, operates a fleet of delivery trucks in Singapore. The company has…

A: VARIABLE COST Variable Cost is a cost that varies with the level of output.Variable costs include…

Q: A U.S. company owns an 80% interest in a company located on Mars. Martian currency is called the…

A: All foreign currency transaction should be recognize using the rate on the date of transaction,…

Q: In a joint processing operation, Nolen Company manufactures three grades of sugar from a common…

A: Incremental Analysis :— This analysis shows the comparison between two different alternatives. A…

Q: The budget director for Baird Cleaning Services prepared the following list of expected selling and…

A: Salary Payable -Salary Payable is the amount incurred but remains unpaid. These shall be recorded in…

Q: Bhekizizwe received the right to use of a company owned vehicle for the first time on 30 April 2022…

A: The determined value of the vehicle is calculated as a percentage of its actual retail market value,…

Q: (b) Assume that Leno uses target costing. What is the price that Leno would charge the retailer for…

A: Lets understand the basics.As per target costing technique, target cost gets by the deducting profit…

Q: Required information Use the following information for the Exercises below. (Algo) [The following…

A: Adjusted trial balance is prepared after including all the additional adjustments. In the trial…

Q: nsport 123.000 kilometers during a year, the average operating cost is 13.2 cents per kilometer. If…

A: The high-low method is used to separate the fixed and variable costs from the mixed costs of…

Q: Hudson River Bakery reported net sales revenue of $56,000 and cost of goods sold of $13,000 Compute…

A: Lets understand the basics.Gross profit is a remaining amount after deducting cost of goods sold…

Q: Required information [The following information applies to the questions displayed below] Golf…

A: Dividend is the reward given to the shareholders in the form of shares, cash or other.The dividend…

Q: Sam was offered a job as an engineer on an oil rig in the Gulf of Mexico. His annual salary was…

A: Fringe benefit is a form of pay for the performance of the services.Generally fringe benefits are…

Q: A machine costing $207,000 with a four-year life and an estimated $17,000 salvage value is installed…

A: Depreciation expense is the non-cash expense reported on the income statement of the entity. It is…

Q: Clara and David are working on the audit of Treadway Enterprises, and are meeting to discuss the…

A: Internal controls over the cash disbursement process are essential for safeguarding a company's…

Q: Crane Corp. had the following shareholders' equity on January 1, 2023: Common shares, unlimited…

A: Journal Entry is the primary step in recording the transactions in the books of accounts.The…

Q: Compute the 2023 tax liability and the marginal and average tax rates for the following taxpaye…

A: Tax rules and regulations fluctuate greatly between jurisdictions, and they may define taxable…

Q: Kronk, Incorporated provides the following information concerning the work in process at its plant:…

A: Material is the cost which is incurred by the entity on the making of the goods. It is a direct…

Q: Jacques Company reported the following current-year purchases and sales data for its only product:…

A: Using weighted average, the average cost per unit is calculated as the total cost divided by the…

Q: Littleton Books has the following transactions during May. May 2 Purchases books on account from…

A: A journal entry in accounting is a record of a financial transaction that documents the impact of…

Q: The comparative statement of financial position of Marigold Corporation as at December 31, 2023,…

A: Cash flow statement :— It is one of the financial statements that shows change in cash and cash…

Q: Kenmore Fabrication estimated that direct labor cost for the year would be $640,000. The company…

A: The overhead is applied to the production on the basis of the pre-determined overhead rate.The…

Q: Income: Joe's salary Jessie's craft sales Interest from certificate of deposit Interest from…

A: The definition of adjusted gross income (AGI) is gross income less adjustments to income. Earnings…

Q: Crane Corporation budgeted 10,300 tablet cases for production during the current year. Crane has…

A: Relevant cost in management accountingthe term relevant cost really matters. The relevant cost is…

Q: Parnell Company acquired construction equipment on January 1, 2020, at a cost of $77,000. The…

A: Introduction:A journal entry is used to record a company that will focus on a company's accounting…

Q: A. Compute WIP inventory at June 30 B. Compute finished goods inventory June 30 C. Compute cost of…

A: The cost of goods sold includes the cost of goods that are sold during the period. The work in…

Q: Supplies Expense Miscellaneous Expense 1. 2. 3. 4. 0 5. 4 200 Journalize the five entries that…

A: The account "Wages payable" often appears in the current liabilities part of a company's balance…

Q: At the end of October, the first month of the business year, the usual adjusting entry t unearned…

A: Adjusting entries guarantees that the financial reports (which include the income statement and…

Q: Use the gross approach to decide whether you should do nothing (the status quo), reduce the price,…

A: The company is considering three cases to decide on the most appropriate method to achieve most…

Q: What is Jacob’s Gross Income?

A: The total pay from an employer before taxes or other deductions is an individual's gross income,…

Q: Because most of the parts for its irrigation systems are standard. Waterways handles the majority of…

A: WEIGHTED AVERAGE METHOD :— Under this method, equivalent units are calculated by adding equivalent…

Q: ces Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $120…

A: Variable costs are costs that vary with the change in the level of output whereas fixed costs are…

Q: Logistics Solutions provides order fulfillment services for dotcom merchants. The company maintains…

A: Variable overheads are those costs which changes with change in activity level. Variance analysis…

Q: Effect of omitting adjusting entry Accrued salaries owed to employees for August 30 and 31 are not…

A: Adjusting entries are those which are reported in the books at the end of the period. These are…

Q: Adjusting entries for accrued salaries Stenberg Realty pays weekly salaries of $21,500 on Friday for…

A: Accrued Salary is an account that represents the amount to be paid to the employees that is not…

Q: Prepare the entries necessary to correct this account. Assume that the patent has a useful life of…

A: Journal entry is the process of documenting commercial transactions for the first time in the books…

Q: 23. Convert the following traditional income statement into a contribution margin income statement.…

A: The contribution margin is calculated as the difference between the sales and variable costs. The…

Q: Required: 1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in…

A: Cost of goods manufactured :raw materials beginning+ purchases- raw materials ending+ direct labour…

Q: Clarks Incorporated, a shoe retailer, sells boots in different styles. In early November, the…

A: Journal entry refers to the systematic documentation of the financial transactions of a company in…

Question

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income
statement follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Amount
$ 88,000
35,200
52,800
41,360
$ 11,440.
Percent of
Sales
100%
40%
60%
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 6% increase in unit sales.
3. Construct a new contribution format income statement for the company assuming a 6% increase in unit sales.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Working notes for the degree of operating leverage, the impact on net operating income

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Olivian Company wants to earn 420,000 in net (after-tax) income next year. Its product is priced at 275 per unit. Product costs include: Variable selling expense is 14 per unit; fixed selling and administrative expense totals 290,000. Olivian has a tax rate of 40 percent. Required: 1. Calculate the before-tax profit needed to achieve an after-tax target of 420,000. 2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. (Round to the nearest unit.) 3. Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2. 4. What if Olivian had a 35 percent tax rate? Would the units sold to reach a 420,000 target net income be higher or lower than the units calculated in Requirement 3? Calculate the number of units needed at the new tax rate. (Round dollar amounts to the nearest dollar and unit amounts to the nearest unit.)
Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.
A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000
Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company Bs fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.
Wellington, Inc., reports the following contribution margin income statement for the month of May. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $10 but will increase fixed costs by 20%. Prepare a projected contribution margin income statement for Wellington, Inc., assuming it purchases the new equipment. Assume sales level remains unchanged.
Markham Farms reports the following contribution margin income statement for the month of August. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $2 but will increase fixed costs by 15%. Prepare a projected contribution margin income statement for Markham Farm assuming it purchases the new equipment. Assume sales level remains unchanged.
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?
Fire Company is a service firm with current service revenue of $900,000 and a 40% contribution margin. Its fixed costs are $200,000. Ice Company has current sales of $420,000 and a 30% contribution margin. Its fixed costs are $90,000. What is the margin of safety for Fire and Ice? Compare the margin of safety in dollars between the two companies. Which is stronger? Compare the margin of safety in percentage between the two companies. Now which one is stronger? Compute the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 10%.
Sports-Reps, Inc., represents professional athletes and movie and television stars. The agency had revenue of 12,345,000 last year, with total variable costs of 5,678,700 and fixed costs of 2,192,400. Required: 1. What is the contribution margin ratio for Sports-Reps based on last years data? What is the break-even point in sales revenue? 2. What was the margin of safety for Sports-Reps last year? 3. One of Sports-Repss agents proposed that the firm begin cultivating high school sports stars around the nation. This proposal is expected to increase revenue by 230,000 per year, with increased fixed costs of 122,500. Is this proposal a good idea? Explain.
Brahma Industries sells vinyl replacement windows to home improvement retailers nationwide. The national sales manager believes that if they invest an additional $25,000 in advertising, they would increase sales volume by 10,000 units. Prepare a forecasted contribution margin income statement for Brahma if they incur the additional advertising costs, using this information:
Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows: