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

       

        

. 12. What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage- 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). Increase in net operating Income- 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.) 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 $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). Increase in net operating income%-

Answer 1

Answer 12.

Degree of Operating Leverage = Contribution Margin / Net Operating Income
Degree of Operating Leverage = $11,800 / $4,012
Degree of Operating Leverage = 2.94

Answer 13.

Degree of Operating Leverage = % Change in Net Operating Income / % Change in Sales
2.94 = % Change in Net Operating Income / 4%
% Change in Net Operating Income = 11.76%

Answer 14.

Sales = $25,700
Variable Expenses = $7,788
Fixed Expenses = $13,900

Contribution Margin = Sales - Variable Expenses
Contribution Margin = $25,700 - $7,788
Contribution Margin = $17,912

Net Operating Income = Contribution Margin - Fixed Expenses
Net Operating Income = $17,912 - $13,900
Net Operating Income = $4,012

Degree of Operating Leverage = Contribution Margin / Net Operating Income
Degree of Operating Leverage = $17,912 / $4,012
Degree of Operating Leverage = 4.46

Answer 15.

Degree of Operating Leverage = % Change in Net Operating Income / % Change in Sales
4.46 = % Change in Net Operating Income / 4%
% Change in Net Operating Income = 17.84%