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

       

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

       

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

       

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.) Net operating Income-

       

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.) Net operating Income-

Answer 1

	Amount	Per unit
Sales	25700	25.7
Variable expenses	13900	13.9
Contribution margin	11800	11.8
Fixed expenses	7788	7.788
Net operating income	4012	4.012

What is the variable expense ratio?

=Variable Cost Per units/Sales

=13.90/25.70

=54.09%

If sales increase to 1,001 units, what would be the increase in net operating income?

Contribution =1001*11.80=11811.80

Net Operating Income =Contribution - Fixed Cost =11811.80-7788 =4023.80

If sales decline to 900 units, what would be the net operating income?

Contribution =900*11.80=10620

Net Operating Income =Contribution - Fixed Cost =10620-7788 =2832

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?

Contribution =900*(11.80+1.60)=12060

Net Operating Income =Contribution - Fixed Cost =12060-7788 =4272

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?

Contribution =1250*(11.80-.60)=14000

Net Operating Income =Contribution - Fixed Cost =12060-(7788+1100) =5112