Question

The following information applies to the questions displayed below.] 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 $ 24,200 Variable expenses 13,400 Contribution margin 10,800 Fixed expenses 7,668 Net operating income $ 3,132 1. If sales decline to 900 units, what would be the net operating income? (Do not round intermediate calculations.) 2. If the selling price increases by $2.40 per unit and the sales volume decreases by 100 units, what would be the net operating income? (Do not round intermediate calculations.) 3. What is the break-even point in unit sales? (Do not round intermediate calculations.) 4. What is the break-even point in dollar sales? (Round intermediate calculations to 4 decimal places. Round your final answer to the nearest dollar amount.) 5. How many units must be sold to achieve a target profit of $6,966? (Do not round intermediate calculations.)

Answer 1

Solution:

Part 1 – Net Operating Income If sales decline to 900 units

	Per Unit (Refer working below)	$$
Sales Revenue (100 Units)	$24.20	$2,420
Less: Variable Expenses	$13.40	$1,340
Contribution Margin	$10.80	$1,080
Less: Fixed Expenses		$7,668
Net Operating Income / (loss)		($6,588)

Net Operating Loss = $6,588

Working:

Calculation of Per Unit Selling Price and Variable Expenses

	Per Unit	$$
Sales Revenue (1,000 Units)	$24.20 (24200 / 1000)	$24,200
Less: Variable Expenses	$13.40 (13400 / 1000)	$13,400
Contribution Margin	$10.80 (24.20 – 13.40)	$10,800
Less: Fixed Expenses		$7,668
Net Operating Income		$3,132

Part 2 -- If the selling price increases by $2.40 per unit and the sales volume decreases by 100 units, what would be the net operating income

	Per Unit	$$
Sales Revenue (900 Units)	$26.60	$23,940
Less: Variable Expenses	$13.40	$12,060
Contribution Margin	$13.20	$11,880
Less: Fixed Expenses		$7,668
Net Operating Income / (loss)		$4,212

Net Operating Income = $4,212

Part 3 -- What is the break-even point in unit sales

Break Even Point in unit sales = Total Fixed expenses / Contribution Margin per Unit

= $7,668 / 10.80

= 710 Units

Part 4 -- What is the break-even point in dollar sales

break-even point in dollar sales = Break Even Point in unit sales x Unit Selling Price

= 710 Units x $24.20

= $17,182

Part 5 -- How many units must be sold to achieve a target profit of $6,966

Number of units must be sold to achieve target profit = (Total Fixed Expenses + Target Profit) / Contribution Margin per Unit

= (7,668 + 6966) / 10.80

= 1,355 Units

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