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 vaolume of 1,000 units (the relevant range of produciton is 500 units to 1,500 units)

Sales      $25400

Variable expenses 13800

Contribution margin 11600

fixed expenses 7772

net operating income 3828

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 1001 units, what would be the increase in net operating income?

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

Explanation / Answer

Part 1)

The contribution margin per unit is calculated as follows:

Contribution Margin Per Unit = Total Contribution Margin/Total Units = 11,600/1,000 = $11.60 per unit

________

Part 2)

The contribution margin ratio is calculated as follows:

Contribution Margin Ratio = Total Contribution Margin//Sales*100 = 11,600/25,400*100 = 45.67%

________

Part 3)

The variable expense ratio is calculated as follows:

Variable Expense Ratio = Total Variable Expenses/Total Sales*100 = 13800/25400*100 = 54.33%

________

Part 4)

The increase in net operating income would be equal to the contribution margin per unit. Therefore, net operating income will increase by $11.60 (11.60*1).

________

Part 5)

The net operating income is calculated with the use of following table:

Sales (900*25.40) 22,860 Less Variable Costs (900*13.80) 12,420 Contribution Margin (900*11.60) 10,440 Less Fixed Cost 7,772 Net Operating Income $2,668

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