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):

What is the contribution margin per unit?

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

What is the contribution margin ratio?

What is the variable expense ratio?

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

If the selling price increases by $1.60 per unit and the sales volume decreases by 100 units, what would be the net operating income

If the variable cost per unit increases by $.60, spending on advertising increases by $1,100, and unit sales increase by 250 units, what would be the net operating income?

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 $7,788 and the total fixed expenses are $13,900. 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?

[The following information applies to the questions displayed below.]

Explanation / Answer

In the above question I am answering the first 4 questions.

1) Calculation of contribution margin per unit

Total contribution margin for 1000 Units = $11800

Therefore contribution margin per unit = $11800/1000 Units = $11.8 per unit

2) If sales increase to 1001 Units increase in net operating income will be as follows:

Sales price per unit = $25700/1000 Units = $25.7 per unit

Variable expense per unit = $13900/1000 Units = $13.90 per unit

Fixed expenses will remain same since it does not changes with no of Units sold

Income statement for 1001 Units

Therefore increase in net operating income = $4023.8-$4012 = $11.8

3)Contribution margin ratio = Contribution margin*100/sales = $11800*100/$25700 = 45.914397%

4)Variable expense ratio = Variable expense*100/Sales = $13900*100/$25700 = 54.0856%

Sales (1001 Units * $25.7 per unit) $25725.7 Variable expenses (1001 Units * $13.9) $13913.9 Contribution margin 11811.8 Less: Fixed expenses 7788 Net operating income $4023.8

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