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	$	100,000
Variable expenses		65,000
Contribution margin		35,000
Fixed expenses		30,100
Net operating income	$	4,900

6a. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

6b. If the variable cost per unit increases by $1, spending on advertising increases by $1,900, and unit sales increase by 280 units, what would be the net operating income?

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

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

Answer 1

Sales = $100,000
Variable Expenses = $65,000
Number of units sold = 1,000

Selling Price per unit = Sales / Number of units sold
Selling Price per unit = $100,000 / 1,000
Selling Price per unit = $100

Variable Costs per unit = Variable Expenses / Number of units sold
Variable Costs per unit = $65,000 / 1,000
Variable Costs per unit = $65

Answer to a.

Selling Price per unit = $100 + $2
Selling Price per unit = $102

Sales Volume = 1,000 - 100
Sales Volume = 900 units

Net Operating Income = (Selling Price per unit - Variable Costs per unit) * Sales Volume - Fixed Expenses
Net Operating Income = ($102 - $65) * 900 - $30,100
Net Operating Income = $3,200

Answer b.

Variable Costs per unit = $65 + $1
Variable Costs per unit = $66

Fixed Expenses = $30,100 + $1,900
Fixed Expenses = $32,000

Sales Volume = 1,000 + 280
Sales Volume = 1,280 units

Net Operating Income = (Selling Price per unit - Variable Costs per unit) * Sales Volume - Fixed Expenses
Net Operating Income = ($100 - $66) * 1,280 - $32,000
Net Operating Income = $11,520

Answer c.

Contribution Margin per unit = Selling Price per unit - Variable Costs per unit
Contribution Margin per unit = $100 - $65
Contribution Margin per unit = $35

Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $30,100 / $35
Breakeven Point in unit sales = 860

Answer d.

Breakeven Point in dollar sales = Breakeven Point in unit sales * Selling Price per unit
Breakeven Point in dollar sales = 860 * $100
Breakeven Point in dollar sales = $86,000