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 $ 25,000 Variable expenses 17,500 Contribution margin 7,500 Fixed expenses 4,200 Net operating income $ 3,300

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

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

3. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

4. If the variable cost per unit increases by $1, spending on advertising increases by $1,150, and unit sales increase by 130 units, what would be the net operating income?

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

6. What is the break-even point in dollar sales?

7. How many units must be sold to achieve a target profit of $4,500?

8. What is the margin of safety in dollars? What is the margin of safety percentage?

9. What is the degree of operating leverage?

10. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

11. 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 $4,200 and the total fixed expenses are $17,500. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

12. 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 $4,200 and the total fixed expenses are $17,500. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?

Answer 1

Q1. Calculation of Net Increase in Income at sales 1001 units:

Q2. Calculation of Net Operating Income at 900 unit sales:

Q3. If selling price increases by $2 to $27 and sales volume decreases by 100 units to 900 units:

Q4. Calculation of Net Operating Income if Variable costs increases by $1 to $18.5, fixed costs increases by $1,150 to $ 5,350 and sales volume increases by 130 units to 1130 units.