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): Required (Answer each question independently and always refer to the original data unless instructed otherwise.)

Sales $ 20,000
Variable expenses 12,000

Contribution margin 8,000
Fixed expenses 6,000

Net operating income $ 2,000
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 sales declined to 900 units, what would be the net operating income?
6.If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?
7.If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increase by 250 units, what would be the net operating income?
8.What is the break even point in unit sales?
9.What is the break even point in sales dollars?
10.How many units must be sold to achieve a target profit of $5,000?
11.What is the margin of safety in dollars? What is the margin of safety percentage?
12.What us tge degree of operating leverage?
13.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?
14.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 $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?
15.Using the degree of operating leverage that you computed in the previous question, what is the estimated percent increase in net operating income of a 5% increase in sales?

Explanation / Answer

1.Contribution Margin per unit=(Sales-Variable Expenses)/1000=(20000-12000)/1000 8 2.ContributionMargin Ratio=(Sale-Variable Cost)/Sales=(20000-12000)/20000 0.4 3.Variable Expenses Ratio=Variable Expenses/(Variable Expenses+Fixed Expenses)=12000/(12000+6000) 0.667 4.Profit for 1000 units=(1000)*8-6000 2000 Profit for 1001 units=(1001)*8-6000 2008 So increase in profit=2008-2000 8 5.Profit in case of 900 units=(900*8)-6000 1200 6.Net Profit=(1000-100)*(22-12)-6000 3000 7.Net Profit=(1000+250)*(20-13)-6000-1500 1250 8.Breakeven Point=Fixed Cost/Unit Contribution=6000/8 750 9.Breakeven Sales=750*20 15000 10.Unit for profit of 5000=(6000+5000)/8 1375

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