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): Sales $ 23,000 Variable expenses 13,000 Contribution margin 10,000 Fixed expenses 8,500 Net operating income $ 1,500 13. 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 _____% 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 $8,500 and the total fixed expenses are $13,000. 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.) Degree of operating leverage _____. 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 $8,500 and the total fixed expenses are $13,000. 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 _____%

Explanation / Answer

1)Degree of operating leverage =contribution /net income

= 6.6667 [rounded to 6.67]

estimated percent increase in net operating income of a 4% increase in sales = %increase in sales *DOL

= 4*6.67

= 26.68 %

2)CONTRIBUTION =23000-8500 = 14500

Net income = 14500-13000 = 1500

Degree of operating leverage = 14500/1500 = 9.6667 [rounded to 9.67]

estimated percent increase in net operating income of a 4% increase in sales = 9.67*4 =38.68%

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