Question

In: Accounting

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...

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

10a. How many units must be sold to achieve a target profit of $21,000?

10b. What is the margin of safety in dollars? What is the margin of safety percentage?

10c. What is the degree of operating leverage?

10d. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?

Solutions

Expert Solution

Part-10 (a):- Number of units must be sold = (Target contribution/contribution per unit)
= (51,100/35) = 1,460
Target contribution =Fixed Cost + Target Profit = (30,100+21,000) = $51,100
Part-10 (b):- Margin of safety in Dollars =(Total sales - Break even sales)
= (100,000-86,000) = 14,000
Break even sales = (Fixed Cost/Contribution per Unit)* Selling price
= (30,100/ (35,000/1,000))*(100,000/100) = 86,000
Margin of safety in Percentage = (Margin of safety/Total sales)
= (14,000/100,000) = 0.14
Part-10 (c):- Degree of operating leverage = (Contribution Margin / Net Income)
= (35,000/4,900) = 7.14
Part-10 (d):- Percentage increase in net operating income = (Degree of operating leverage * Increase in sales)
= (7.14*5%) = 0.36

Related Solutions

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 $ 105,000 Variable expenses 73,500 Contribution margin 31,500 Fixed expenses 27,720 Net operating income $ 3,780 Foundational 5-5 A. If sales decline to 900 units, what would be the net operating income? B. 6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units,...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 10. How many units must be sold to achieve a target profit of $21,000? 11. What is the margin of safety in dollars? What is the margin of safety percentage? 12. What is the degree...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 $ 60,000 Variable expenses 39,000 Contribution margin 21,000 Fixed expenses 14,700 Net operating income $ 6,300 1. What is the variable expense ratio? 2. If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.) 3. If sales decline to...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 Required: 1. What is the contribution margin per unit? 2.. What is the contribution margin ratio? 3.What is the variable expense ratio? 4. If sales increase to 1,001 units, what would be the increase in...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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. If sales decline to 900 units, what would be the net operating income?
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 3. What is the variable expense ratio? 4. If sales increase to 1,001 units, what would be the increase in net operating income? 5. If sales decline to 900 units, what would be the net...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 $ 95,000 Variable expenses 57,000 Contribution margin 38,000 Fixed expenses 31,920 Net operating income $ 6,080 1. What is the contribution margin per unit? 2. What is the contribution margin ratio? 3. What is the variable expense ratio? 4. If sales increase to 1,001 units, what would be the increase in...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 $ 23,900       Variable expenses 13,300       Contribution margin 10,600       Fixed expenses 7,632       Net operating income $ 2,968         Required: What is the degree of operating leverage Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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. If sales decline to 900 units, what would be the net operating income? Net operating income= ? 2. If the selling price increases by $2 per unit and the sales volume decreases by 100...
Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...
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 $ 50,000 Variable expenses 27,500 Contribution margin 22,500 Fixed expenses 14,850 Net operating income $ 7,650 1.What is the contribution margin per unit? 2.What is the contribution margin ratio? 3.What is the variable expense ratio? 4.If sales increase to 1,001 units, what would be the increase in net operating income? 5.If...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT