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	$	25,700
Variable expenses		13,900
Contribution margin		11,800
Fixed expenses		7,788
Net operating income	$	4,012

Required:

1.	What is the contribution margin per unit? (Round your answer to 2 decimal places.)

2.	What is the contribution margin ratio? (Enter your answer as a percentage rounded to 2 decimal places (i.e., 0.13579 should be entered as 13.58).)

   

3.	What is the variable expense ratio? Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

4.	If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.)

5.	If sales decline to 900 units, what would be the net operating income? (Do not round intermediate calculations.)

6.	If the selling price increases by $1.60 per unit and the sales volume decreases by 100 units, what would be the net operating income? (Do not round intermediate calculations.)

7.	If the variable cost per unit increases by $.60, spending on advertising increases by $1,100, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.)

8.	What is the break-even point in unit sales? (Do not round intermediate calculations.)

9.	What is the break-even point in dollar sales? (Round intermediate calculations to 4 decimal places. Round your final answer to the nearest dollar amount.)

10.	How many units must be sold to achieve a target profit of $7,906? (Do not round intermediate calculations.)

11-a.

What is the margin of safety in dollars? (Do not round intermediate calculations.)

        

11-b.

What is the margin of safety percentage? (Round your final answers to the nearest whole percentage (i.e, .12 should be entered as 12).)

          

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 4% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

  
       

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 $7,788 and the total fixed expenses are $13,900. 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 $7,788 and the total fixed expenses are $13,900. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

Answer 1

Answer

Units	1000
Selling Price	$               25.7
Variable Expenses	$               13.9
Sales	$          25,700
Variable expenses	$          13,900
Contribution Margin	$          11,800
Fixed Expenses	$            7,788
Net operating Income	$            4,012

A.

Contribution Margin per unit = Contribution Margin / No. of Units Sold

= $11,800 / 1000 Units

Contribution Margin per unit = $11.8 per unit

B.

Contribution Margin ratio = Contribution Margin / Sales

= 11,800 / 25,700

Contribution Margin ratio = 45.9144%

C.

Variable Expenses ratio = Variable Expenses / Sales

= 13,900 / 25,700

Variable Expenses ratio = 54.0856%

4.

As there is a increase of 1 Unit in sales, so we will calculate increase in profit because of 1 Unit.

As we know that Fixed expenses will remain same irrespective of the no. of units produced or sold, So if we sell 1 more unit there will be only variable cost.

Selling price = $25.7 per unit ($25,700 / 1000 Units)

Increase in Profit = (Selling price * 1 Unit) * Contribution Margin ratio

= ($25.7 * 1 Unit) * 45.9144%

Increase in Profit = $11.8

5.

Units	900
Selling Price	$                        25.7
Variable Expenses	$                        13.9
Sales	$              23,130.00
Variable expenses	$              12,510.00
Contribution Margin	$              10,620.00
Fixed Expenses	$                7,788.00
Net operating Income	$                2,832.00

6.

Units	900
Selling Price (25.7 + 1.6)	$                           27.3
Variable Expenses	$                           13.9
Sales	$                      24,570
Variable expenses	$                      12,510
Contribution Margin	$                      12,060
Fixed Expenses	$                         7,788
Net operating Income	$                         4,272

7.

Units(1000 + 250)	1250
Selling Price	$               25.7
Variable Expenses (13.9 + 0.6)	$               14.5
Sales	$          32,125
Variable expenses	$          18,125
Advertisement expenses	$            1,100
Contribution Margin	$          12,900
Fixed Expenses	$            7,788
Net operating Income	$            5,112

8.

Breakeven Point (In Units) = Fixed Cost / Contribution per unit

= 7788 / $11.8 Per unit ($11,800 / 1000 Units)

Breakeven Point (In Units) = 660 Units

9.

Breakeven Point (In Value) = Breakeven Point (In Units) * Selling price per unit

= 660 Units * $25.7

Breakeven Point (In Value) = $16,962

10.

Let units to earn $7,906 profit = x

Profit = Sales –Variable cost – Fixed Cost

7,906 = 25.7x - 13.9x – 7,788

(7906+7788) = 11.8x

1330 = x

No. of units to be sold to earn $7,906 profit = 1,330 Units