Question

9-12

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	$	25,000
Variable expenses		17,500
Contribution margin		7,500
Fixed expenses		4,200
Net operating income	$	3,300

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $4,500?

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.)

Answer 1

	Total	Per Unit
Sales	25,000	25
Variable expenses	17,500	17.5
Contribution margin	7,500	7.5
Fixed expenses	4,200
Net operating income	3,300
contribution margin ratio	30%	(Contribution/sales)
9)
Break Even (Sales) = Fixed cost / contribution margin ratio
=4200/30%
14,000
10)
Target Units = (Fixed cost + target income )/ contribution per unit
=(4200+4500)/7.5
1,160	Units
11)
Margin of safety (Dollars) = Total sales - break even sales
=25000-14000
11,000
Margin of safety (%age ) = Margin of safety sales / total sales*100
=11000/25000*100
44%
12) Operating leverage = Contribution margin / net operating income
=7500/3300
2.27