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

1.What is the contribution margin per unit? $ 8 per unit 2.What is the contribution margin ratio? 40% 3.What is the variable expense ratio? 60% 4.If sales increase to 1,001 units, what would be the increase in net operating income? $8 5.If sales decline to 900 units, what would be the net operating income? $1200 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? $3000 . 7.f the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increase by 250 units, what would be the net operating income? $1250 8.What is the break-even point in unit sales? 750 units 9.What is the break-even point in dollar sales? $15000 10.How many units must be sold to achieve a target profit of $5,000? $1375    11a.What is the margin of safety in dollars? $5000 11b.What is the margin of safety percentage?

25%

12.What is the degree of operating leverage?

13.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?

20%

14.Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

15.Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?

*All the asnwera are right. I check them. I just need help with 13, 14, and 15. Hope this helps you to answer them.Thank you!

Answer 1

1. Calculation of contribution margin per unit:

Contribution margin per unit = Total contribution/Total units sold = $8,000/1,000 units = $8 per unit

Whereas,

Total contribution = Sales - Variable expenses = $20,000 - $12,000 = $8,000

Total units sold = 1,000 units

2. Calculation of contribution margin ratio:

Contribution margin ratio = (Contribution margin/Sales amount) * 100 = ($8,000/$20,000) * 100 = 40% of sales

3. Calculation of Variable expense ratio:

Variable expense ratio = (Variable expense/Sales amount) * 100 = ($12,000/$20,000) * 100 = 60% of sales

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

When 1 extra unit of product will be sold, the entire contributon margin earned for that extra unit will help to increase the net operating income.

Contribution per unit = $8 per unit (as calculated in part 1 questoon above)

Therefore, net operating income would get increased by this contribution margin of $8.