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):

11. What is the margin of safety in dollars? What is the margin of safety percentage?

margin of safety in dollars____

margin of safety percentage____

12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

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 $3,120 and the total fixed expenses are $9,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

15. 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 $3,120 and the total fixed expenses are $9,000. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Sales $ 15,000 Variable expenses 9,000 Contribution margin 6,000 Fixed expenses 3,120 Net operating income $ 2,880

11. What is the margin of safety in dollars? What is the margin of safety percentage?

margin of safety in dollars____

margin of safety percentage____

12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

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 $3,120 and the total fixed expenses are $9,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

15. 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 $3,120 and the total fixed expenses are $9,000. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Explanation / Answer

11 Given sales units = 1000 units CONTRIBUTION MARGIN = $6000 Contribution margin per unit = $6000/1000 = $6 per unit Net Operating income = $2880 contribution margin ratio = $6000/$15000 = 0.4 margin of safety = net operating income/contribution margin ratio = $2880/0.4 = $7200 margin of safety% = $7200/15000 =48% 12 degree of operating leverage = contribution margin/net operative income =$6000/$2880 = 2.08 13 expected increase in sales = 5% degree of operating leverage = 2.08 expected increase in net operating income = degree of operating leverage*percentage increase in sales=2.08*5% = 10.4% 14 particulars amount sales 15000 less variable expenses 3120 contribution margin 11880 less:fixed expenses 9000 net operating income 2880 therefore degree of operating leverage = 11880/2880 = 4.13 15 expected increase in net operating income = 4.125*5% = 20.65%

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