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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	$	35,000
Variable expenses		21,000
Contribution margin		14,000
Fixed expenses		8,400
Net operating income	$	5,600

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?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,250, and unit sales increase by 150 units, what would be the net operating income?

8.  What is the break-even point in unit sales?

Answer 1

5.

Sales price = $35,000 / 1,000

= $35

Variable cost per unit = $21,000 / 1,000

= $21

Sales Revenue ($35 * 900)	$31,500
Variable expenses ($21 * 900)	$18,900
Contribution margin	$12,600
Fixed expenses	$8,400
Net operating income	$4,200

Net operating income is $4,200.

6.

Revised selling price = $35 + $2

= $37

Sales volume = 1,000 - 100

= 900 units

Sales Revenue (900 * $37)	$33,300
Variable expenses (900 * $21)	$18,900
Contribution margin	$14,400
Fixed expenses	$8,400
Net operating income	$6,000

Net operating income is $6,000.

7.

Revised Varaible cost per unit = $21 + $1

= $22

Revised fixed expenses = $8,400 + $1,250

= $9,650

Unit sales = 1,000 + 150

= 1,150 units

Sales Revenue (1,150 * $35)	$40,250
Variable expenses (1,150 * $22)	$25,300
Contribution margin	$14,950
Fixed expenses	$9,650
Net operating income	$5,300

Net operating income is $5,300.

8.

Contribution margin per unit = Sales price - Variable cost per unit

= $35 - $21

= $14

Break even point in unit sales = Fixed expenses / Contribution margin per unit

= $8,400 / $14

= 600 units