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equired information [The following information applies to the questions displayed below.] Oslo Company prepared the following...

equired information

[The following information applies to the questions displayed below.]

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 $ 20,000
Variable expenses 12,000
Contribution margin 8,000
Fixed expenses 6,000
Net operating income $ 2,000

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

12. What is the degree of operating leverage?

13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in unit sales?

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 $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

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 $6,000 and the total fixed expenses are $12,000. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in unit sales?

Solutions

Expert Solution

Req 11.
Contribution margin ratio= Contribution / Sales *100
8000 / 20000*100 = 40%
Margin of Sfety in $:
Net income 2000
Divide: CM ratio 40%
Margin of safety in $ 5000
Margin of safety as % of Total
Margin of safety in $ 5000
Divide: Total sales 20000
Margin of safety as % of Total 25%
Req 12
Degree of operating leverage:
Contribution 8000
Divide: Net Income 2000
Degree of operating leverage: 4
Req 13.
% incraese in sales 5%
Multiply: Degree of operating leverage 4
% incrrease in Income 20%
Req 14.
Sales 20000
Less: variable cost 6000
Contribution 14000
Less: Fixed cost 8000
Net income 6000
Degree of operating leverage:
Contribution 14000
Divide: Net Income 6000
Degree of operating leverage: 2.33
Req 15.
% incraese in sales 5%
Multiply: Degree of operating leverage 2.33
% incrrease in Income 11.65%

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