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	$	20,000
Variable expenses		12,000
Contribution margin		8,000
Fixed expenses		6,000
Net operating income	$	2,000

Required:

1. What is the contribution margin per unit?

2.. What is the contribution margin ratio?

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

1) Contribution margin per unit = 8000/1000 = 8 per unit

2) Contribution margin ratio = 8000/20000 = 40%

3) variable expense ratio = 12000/20000 = 60%

4) Increase in net operating income = 8

5) Net operating income = (900*8-6000) = 1200

6) Net operating income = (900*10-6000) = 3000