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):

1. What is the margin of safety in dollars? (Do not round intermediate calculations.) Margin of safety ______

2. What is the margin of safety percentage? (Round your final answers to the nearest whole percentage (i.e, .12 should be entered as 12). Margin of safety ________%

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

Degree of operating leverage _________

4. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34). Increase in net operating income ________%

5. 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 $6,232 and the total fixed expenses are $12,100. 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.) Degree of operating leverage________

6. 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 $6,232 and the total fixed expenses are $12,100. 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? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

Increase in net operating income __________%

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):

Explanation / Answer

1. Margin of safety = Actual Sales - Break Even Sales

= $ 20,300 - $ 15,428

= $ 4,872

Note:

Break Even Sales = Fixed Cost / Contribution Margin Ratio

= $ 6,232 / 40.3941%

= $ 15,428

2.

margin of safety percentage = margin of safety dollars / Actual Sales *100

= $ 4,872 / $ 20,300 *100

= 24%

3. degree of operating leverage = Contribution Margin /Operating Income

= $ 8,200 / $ 1,968

=4.17

4. Increase in net operating income = degree of operating leverage * Percent Increase in Sales*100

= 4.17 *4% *100

=16.68%

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