Question

Oslo Company prepared the following contribution income statement based on sales volume of 1000 units the relevant range of production is 500 units to 1500 units):

Sales $95,000

Variable expenses 5700

contribution margin 38000

fixed expenses 31,920

Net operating income $6080

1. WHAT is the contribution margin per unit ?

2.What is the contribution margin per ration?

3.If sales increase to 1001,units what would be the increase in net operating income?

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

5.What is the break even point in unit sales?

6. What is the break even in dollar sales?

please explain answer

Answer 1

Ans: Based on 1,000 units sold

1) Contribution margin per unit = $38,000/1,000

Contribution margin per unit = $38

2) Contribution margin ratio

=( Unit contribution margin/selling price per unit)*100

= ($38/$95)*100

= 40%

Contribution margin ratio = 40%

3) Sales volume increase to 1,001.

Contribution margin would increase by $38

Therefore, Net operating income increases by $38

Net operating income = $31,958

4) Sales volume decrease to 900

Contribution margin would decrease by $3,800

($38*100)

Net operating income decreases by $3,800

Net operating income = 2,280

($6,080-$3,800)

5) Break even sales units = Fixed costs/ Unit contribution margin

= $31,920/$38

= 840 units

Break even sales units = 840

6) Break even sales dollar = $79,800

(840 * $95)