Question

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales	$	100,000
Variable expenses		65,000
Contribution margin		35,000
Fixed expenses		30,100
Net operating income	$	4,900

10. How many units must be sold to achieve a target profit of $21,000?

11. What is the margin of safety in dollars? What is the margin of safety percentage?

12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

14. Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $30,100 and the total fixed expenses are $65,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

15. Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $30,100 and the total fixed expenses are $65,000. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

• All working forms part of the answer

Answer - 10
A	Contribution margin	$          35,000.00
B	No. of units sold	1,000
C = A/B	Contribution margin per unit	$                   35.00
D	Fixed Cost	$          30,100.00
E	Target profits	$          21,000.00
F = D+E	Total Contribution margin required	$          51,100.00
G = F/C	No. of units to be sold = ANSWER	1,460
Answer -11
A	Contribution margin per unit	$                   35.00
B	Fixed Cost	$          30,100.00
C = B/A	Break Even units	860
D	Units Sold	1,000
E = D-C	Margin of Safety Units	140
F	Sales Price	$                   10.00
G=E x F	Margin of Safety in dollars = ANSWER	$             1,400.00
H = (E/D) x 100	Margin of Safety % = ANSWER	14%
Answer - 12
A	Contribution margin	$          35,000.00
B	Net Operating Income	$             4,900.00
C = A/B	Degree of Operating Leverage	7.14
Answer - 13
A	Degree of Operating Leverage	7.14
B	Increase % in Sales	5%
C = A x B	Percent increase in net Operating Income = ANSWER	35.70%
Answer - 14
A	Sales	$        100,000.00
B	Variable expenses	$          30,100.00
C = A- B	Contribution margin	$          69,900.00
D	Fixed Cost	$          65,000.00
E = C-D	Net Operating Income	$             4,900.00
F = C/E	Degree of Operating Leverage = ANSWER	14.27
Answer 15
A	Degree of Operating Leverage = ANSWER	14.27
B	Increase % in Sales	5%
C = A x B	Percent increase in net Operating Income = ANSWER	71.35%