Oslo Company prepared the following contribution format income statement based o
ID: 2745416 • Letter: 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
$
20,900
Variable expenses
12,300
Contribution margin
8,600
Fixed expenses
6,708
Net operating income
$
1,892
Required:
1.
What is the contribution margin per unit? (Round your answer to 2 decimal places.)
2.
What is the contribution margin ratio? Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).
3.
What is the variable expense ratio? Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).
4.
If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.)
5.
If sales decline to 900 units, what would be the net operating income? (Do not round intermediate calculations.)
6.
If the selling price increases by $2.30 per unit and the sales volume decreases by 100 units, what would be the net operating income (Do not round intermediate calculations.)
7.
If the variable cost per unit increases by $1.30, spending on advertising increases by $1,800, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.)
8.
What is the break-even point in unit sales? (Do not round intermediate calculations.)
9.
What is the break-even point in dollar sales? (Round intermediate calculations to 4 decimal places. Round your answer to the nearest dollar amount.)
10.
How many units must be sold to achieve a target profit of $5,246? (Do not round intermediate calculations.)
11-a.
What is the margin of safety in dollars? (Do not round intermediate calculations.)
11-b.
What is the margin of safety percentage? (Round your final answers to the nearest whole percentage (i.e, .12 should be entered as 12).)
12.
What is the degree of operating leverage? (Round your answer to 2 decimal places.)
Required information
13.
Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% 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).
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 $6,708 and the total fixed expenses are $12,300. 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 $6,708 and the total fixed expenses are $12,300. 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 5% 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).
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) Calculation of Contribution per unit:
Contribution per unit = Contribution / Number of units
= 8600 / 1000
= $8.6
2) Calculation of Contribution margin ratio :
contribution margin ratio = Contribution / Sales
= 8600 / 20900
= 0.4115 or 41.15%
3) Calculation of Variable Expense ratio :
Variable Expense ratio = Variable cost / Sales
= 12300 / 20900
= 0.5885 or 58.85%
4) Change in net operating income if Units increased to 1001 :
Sale price per unit = $20.9 **(20900/1000units)
Less: Variable cost= ($12.30) **(20.9 * 58.85%)
Contribution = $8.60
since fixed cost will be remained constant even though volume changes Contribution will become Operating income. So that change in net operating income is $8.60 (positive).
5) Calculation of Net operating income if Volume decreases to 900 units:
Sales = $18810 **(900*20.90)
Less: Variable cost = ($11070) **(18810 * 58.85%)
Contribution = $7740
Less: Fixed cost = (6708)
Net Operating income= 1032
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