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	$	100,000
Variable expenses		65,000
Contribution margin		35,000
Fixed expenses		30,100
Net operating income	$	4,900

3. What is the variable expense ratio?

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

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

6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

Answer 1

3) Variable expense ratio = Variable cost/Sales = 65000/100000 = 65%

4) Contribution margin per unit = 35000/1000 = 35

if sales increase to 1001 units increase in net operating income = 1*35 = 35 per unit

5) Net operating income if sales 900 Units = (900*35-30100) = 1400

6) Net operating income :

Sales (900*102)	91800
Variable cost (900*65)	58500
Contribution margin	33300
Fixed cost	30100
Net operating income	3200