Oslo Company prepared the following contribution format income statement based o

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 : $60,000

Variable Expenses:    $39,000

Contribution Margin: $ 21,000

Fixed Espenses : $ 14,700

Net Operating Income: $ 6,300

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 $1,500, and unit sales increases by 200 units, what would be the net operating income?

5. How many units must be sold to achieve a target profit of $12,600

6. 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 $14,700 and the otal fixed expenses are $39,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round to 2 decimal places)

Explanation / Answer

1 Increase in net operating income = 21000/1000 = $21 2 Sales 54000 =900*60 Variable Expenses 35100 =900*39 Contribution Margin 18900 Fixed Expenses 14700 Net Operating Income 4200 3 Sales 55800 =900*62 Variable Expenses 35100 =900*39 Contribution Margin 20700 Fixed Expenses 14700 Net Operating Income 6000 4 Sales 72000 =1200*60 Variable Expenses 48000 =1200*(39+1) Contribution Margin 24000 Fixed Expenses 16200 =14700+1500 Net Operating Income 7800 5 Units to be sold =(14700+12600)/(60-39)= 1300 6 Sales 60000 Variable Expenses 14700 Contribution Margin 45300 Fixed Expenses 39000 Net Operating Income 6300 Degree of operating leverage = 45300/6300= 7.19

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