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

1) What is the contribution margin per unit?

2) What is the contribution margin ratio?

3) What is the variable expense ratio?

4) If sales increase to 1,001 units, what would be the increase in net operating income?

5) If sales decline to 900 units, what would be the net operating income?

6) If the selling price increases by $1.50 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7) If the variable cost per unit increases by $.50, spending on advertising increases by $1,000, and unit sales increase by 250 units, what would be the net operating income?

8) What is the break-even point in unit sales?

9) What is the break-even point in dollar sales?

10) How many units must be sold to achieve a target profit of $5,750?

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

12) What is the degree of operating leverage?

13) Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales?

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?

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?

Explanation / Answer

Solution 1:

Selling price per unit = $23,000 / 1000 = $23 per unit

Variable expenses per unit = $13,000 / 1000 = $13 per unit

Contribution margin per unit = Selling price per unit - Variable cost per unit= $23 - $13 = $10 per unit

Solution 2:

Contribution margin ratio = Contribution / Sales = $10,000 / $23,000 = 43.48%

Solution 3:

Variable expenses ratio = Variable expenses / Sales = $13,000 / $23,000 = 56.52%

Solution 4:

If sales is increase to 1001 units then increase in net operating income = Increase in sales quantity * Contribution margin per unit = 1 * $10 = $10

Solution 5:

If sale decline to 900 units then net operating income = Contribution - fixed cost

= (900*$10) - $8,500 = $500

Solution 6:

If sales price increases by $1.50 per unit then contribution margin per unit also increases by $1.50 per unit

Revised contribution margin per unit = $10 + $1.50 = $11.50

Revised sales volume = 1000 - 100 = 900 units

Net operating income = (900*$11.50) - $8,500 = $1,850

Solution 7:

Revised variable cost per unit = $13 + $0.50 = $13.50

Revised fixed cost = $8,500 + $1000 = $9,500

Revised contribution margin per unit = $23 - $13.50 = $9.50

Revised sales volume = 1000 + 250 = 1250 units

Revised net operating income = (1250 * $9.50) - $9,500 = $2,375

Solution 8:

break-even point in unit sales = Fixed cost / contribution margin per unit = $8,500 / $10 = 850 units

Solution 9:

break-even point in dollar sales = Breakeven point in units sales * Selling price per unit

= 850*$23 = $19,550

Solution 10:

Nos of units to be sold to achieve target profit of $5,750 = (Fixed cost + target profit) / contribution margin per unit

= ($8,500 + $5,750) / $10 = 1425 units

Note: I have answered more than required parts as per chegg policy, kindly post separate question for answer of remaining parts.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.