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 $ 85,000 Variable expenses 59,500 Contribution margin 25,500 Fixed expenses 20,400 Net operating income $ 5,100 9. What is the break-even point in dollar sales? How many units must be sold to achieve a target profit of $15,300? What is the margin safety in dollars? what is the margin of safety percentage? Using the degree of opersting leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?

Answer 1

• All working forms part of the answer
• Workings

	Amount	Units	Per unit
Sales	$                                   85,000.00	1,000	$                                              85.00
Variable expenses	$                                   59,500.00	1,000	$                                              59.50
Contribution margin	$                                   25,500.00	1,000	$                                              25.50
Fixed Expenses	$                                   20,400.00
Net Operating Income	$                                     5,100.00

• All answers, as asked

A	Contribution margin	$                                   25,500.00
B	Sales	$                                   85,000.00
C = (A/B) x 100	CM Ratio	30%
D	Fixed Expenses	$                                   20,400.00
E = D/C	Answer (a): Break Even point in Dollars Sales	$                                   68,000.00

A	Target Profits	$                                   15,300.00
B	Fixed Expenses	$                                   20,400.00
C = A+B	Total Contribution margin required	$                                   35,700.00
D	Contribution margin per unit	$                                           25.50
E = C/D	Answer (b) No. of units to be sold to earn target profits	1,400

A	Sales revenue	₹                                   85,000.00
B	Break Even point in Dollar Sales [calculated above]	₹                                   68,000.00
C = A - B	Margin of Safety in Dollars [Answer 'c']	₹                                   17,000.00
D = (C/A) x 100	Margin of Safety % [Answer 'd']	20%

A	Contribution margin	$                                   25,500.00
B	Net Operating Income	$                                     5,100.00
C = (A/B)	Degree of Operating Leverage [Answer 'e']	5
D	% Increase in Sales	5%
E = C x D	% Increase in Operating Income [Answer 'f']	25%