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):

If sales increase to 1,001 units, what would be the increase in net operating income?

If sales decline to 900 units, what would be the net operating income?

If the selling price increases by $1.60 per unit and the sales volume decreases by 100 units, what would be the net operating income?

If the variable cost per unit increases by $.60, spending on advertising increases by $1,100, and unit sales increase by 250 units, what would be the net operating income?

What is the break-even point in unit sales?

What is the break-even point in dollar sales?

How many units must be sold to achieve a target profit of $7,906?

What is the margin of safety in dollars?

What is the margin of safety percentage?

What is the degree of operating leverage?

Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales?

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 $7,788 and the total fixed expenses are $13,900. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales?

Explanation / Answer

Sale price per unit = 25700/ 1000 = $ 25.7

Variable Expense per unit = 13900/ 1000 = $ 13.9

1) If Sales increases to 1001 units, change in operating income is as follows

Sales =                   25,726 ( 25.7 * 1001)

Variable Expense = 13,914 ( 13.9 * 1001)

Contribution =          11,812

Fixed Expenses =    7,788 ( Remains Same)

Net Operating Income = $ 4,024

Increase in Net Operating Income = 4024 - 4012 = $12

2) If Sales decline to 900 units, change in operating income is as follows

Sales =                   23,130 ( 25.7 * 900)

Variable Expense = 12,510 ( 13.9 * 900)

Contribution =          10,620

Fixed Expenses =    7,788 ( Remains Same)

Net Operating Income = $ 2,832

Decrease in Net Operating Income = 4012 - 2832 = $1,180

3) If Sales decrease by 100 units and sale price per unit increases $1.60 per unit change in operating income is as follows

New Sales price per unit = 25.7+1.60 = $ 27.3

Sales =                   24,570 ( 27.3 * 900)

Variable Expense = 12,510 ( 13.9 * 900)

Contribution =          12,060

Fixed Expenses =    7,788 ( Remains Same)

Net Operating Income = $ 4,272

Increase in Net Operating Income = 4272 - 4012 = $260

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