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	$	26,000
Variable expenses		14,000
Contribution margin		12,000
Fixed expenses		7,800
Net operating income	$	4,200

1.

value:
10.00 points

Required information

Required:

1.	What is the contribution margin per unit? (Round your answer to 2 decimal places.)

	Contribution margin per unit

What is the contribution margin ratio? (Enter your answer as a percentage rounded to 2 decimal places (i.e., 0.13579 should be entered as 13.58).) Contribution margin ratio

  

What is the variable expense ratio? Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34). Variable expense ratio If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.) Increase in net operating income If sales decline to 900 units, what would be the net operating income? (Do not round intermediate calculations.) Net operating income If the selling price increases by $1.50 per unit and the sales volume decreases by 100 units, what would be the net operating income? (Do not round intermediate calculations.) Net operating income If the variable cost per unit increases by $.50, spending on advertising increases by $1,000, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.) Net operating income What is the break-even point in unit sales? (Do not round intermediate calculations.) Break-even point units 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.) Break-even point How many units must be sold to achieve a target profit of $8,100? (Do not round intermediate calculations.) Number of units 11a. What is the margin of safety in dollars? (Do not round intermediate calculations.) Margin of safety 11-b. What is the margin of safety percentage? (Round your final answers to the nearest whole percentage (i.e, .12 should be entered as 12).) Margin of safety What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 3% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).    Increase in net operating income % 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 $7,800 and the total fixed expenses are $14,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage 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 $7,800 and the total fixed expenses are $14,000. 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 3% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34). Increase in net operating income %

Answer 1

1)	Contribution margin per unit				$12
	(12000/1000)
2)	Contribution margin ratio				46.15%
	(contribution/sales)
	(12000/26000)
3)	Variable expense ratio				53.85%
	(variable expense/sales)
	(14000/26000)
4)	increase in net operating income				12
	(contribution per unit * 1 unit)
5)	Net operating income				3,000
	contribution		(900*12)=		10800
	less :Fixed expense				-7,800
	Net operating income				3000
6)	net operating income				4,350
	contribution		(900*13.5)		12150
	less :Fixed expense				-7,800
	Net operating income				4350
7)	net operating income				3,350
	contribution		(1,250*11.50)		12150
	less :Fixed expense				-8,800
	Net operating income				3350
8)	Break-even point				650	units
	(fixed cost/contribuion per unit)
	(7800/12)
9)	Break even point				16900
	(650*26)
10)	Number of units				1325	units
	(fixed cost+target profit)/contribution per unit
	margin of safety in dollars				9100
	(actual sales - BEP sales)
	(26000-16900)
11)	Margin of safety percentage				35%
	(margin of safety/actual sales)
	Degree of operating leverage				2.86
	contibution /net income
	increase in net operating income				8.58	%
	(3*2.86)
	degree of operating leverage				4.33
	sales				26,000
	less variable expense				7,800
	contribution				18,200
	less fixed expense				14,000
	net income				4,200
	increase in net operating income				12.99	%