Olso company sells its product for $20 per unit. The variable cost to produce th

Question

Olso company sells its product for $20 per unit. The variable cost to produce the project is $12 per unit. The fixed expenses come out to $6,000. Olso Company sold 1,00 units this period.

A) What is the Contribution Margin per unit?

B) Contribution Margin ratio?

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

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

E) If selling price increases by $2 per unit and sales volume decreases by 100 units, what is the new net operating income?

F) What is the break-even point in unit sales (use the original data)?

G) Break-even in dollar sales (use the original data)?

H) How many units must be sold to achieve a target profit of $5,000 (use original data)?

I) Margin of Safety in $ (use original data)?

J) Margin of Safety in Percentage (use original data)?

Explanation / Answer

A) the Contribution Margin per unit= 20 - 12 = $8 per unit

B) Contribution Margin ratio = 8 *100/20 = 40%

C) If sales increase to 1,001 units, what would be the increase in net operating income = $8

D) If sales decline to 900 units, the net operating income = 900 * 8 - $6000 = $1200

E) If selling price increases by $2 per unit and sales volume decreases by 100 units, the new net operating income = 900 * 10 - 6000 = $3000

F) the break-even point in unit sales = 6000 / 8 = 750 units

G) Break-even in dollar sales = 6000 / 40% = $15000

H) Units must be sold to achieve a target profit of $5,000= (6000 + 5000) / 8 = 1375 units

I) Margin of Safety in $ = (1000 - 750) * 20 = $5000

J) Margin of Safety in Percentage =5000 * 100 / 20000 = 25%

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