0 Required information The following information applies to the questions displa

Question

0 Required information The following information applies to the questions displayed below] 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): Sales Variable expenses Contribution margin Fixed expenses Net operating income s70,000 38,500 31,500 8,190 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?

Explanation / Answer

Answer 6 Calculation of net operating income Per Unit Total (900 units) Sales $72.00 $64,800.00 Variable Expenses $38.50 $34,650.00 Contribution Margin $33.50 $30,150.00 Fixed Expenses $23,310.00 Net Operating Income $6,840.00 Answer 7 Calculation of net operating income Per Unit Total (1220 units) Sales $70.00 $85,400.00 Variable Expenses $39.50 $48,190.00 Contribution Margin $30.50 $37,210.00 Fixed Expenses $24,910.00 Net Operating Income $12,300.00 Answer 10 No.of units must be sold to achieve a target profit of $18900 = (Fixed expense + Target profit) / Contribution Margin per unit Contribution Margin per unit = Selling price per unit - Variable expenses per unit = $70 - $38.50 = $31.50 No.of units must be sold to achieve a target profit of $18900 = ($23310 + $18900) / $31.50 = 1340 units Answer 12 Degree of operating leverage = Contribution Margin / Operating Income Degree of operating leverage = $31500 / $8190 = 3.85 times Answer 13 Estimated % increase in net operating income = Degree of operating leverage * % increase in sales = 3.85 * 5% = 19.23% Answer 14 Degree of operating leverage = New Contribution Margin / New Operating Income New Contribution Margin = Sales - Variable expenses = $70000 - $23310 =$46690 New Operating Income = New Contribution Margin - Fixed expenses = $46690 - $38500 = $8190 Degree of operating leverage = $46690 / $8190 = 5.70 times Answer 8 Break even point in unit sales = Fixed expenses / Contribution Margin per unit = $23310 / $31.50 = 740 units Answer 9 Break even point in dollar sales = Break even point in units * selling price per unit = 740 units * $70 = $51,800

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