If the selling price increases by $1.60 per unit and the sales volume decreases

Question

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 sales decline to 900 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?

What is the break-even point in dollar sales?

How many units must be sold to achieve a target profit of $7,906?

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 sales decline to 900 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?

Foundational [LO5-1, LO5-3, LO5-4, LO5-5, LO5-6, LO5-7, LO5-8] The following information applies to the questions displayed below. Oslo Company prepared the following contribution format income statement based on a sales volume of ,000 units (the relevant range of production is 500 units to 1,500 units): Sales Variable expenses $25,700 13,900 Contribution margin Fixed expenses 11,800 7,788 Net operating income $ 4,012

Explanation / Answer

a.

Contribution margin at 1000 units = $11,800

Contribution margin per unit = $11,800 / 1,000 = $11.80 per unit

If selling price increases by $1.60 per unit, the contribution margin per unit shall also increase by same amount.

Revised contribution margin per unit = $11.80 + $1.60 = $13.40 per unit

Revised sales volume = 1000 units – 100 units = 900 units

Contribution margin for 900 units = $13.40 * 900 units = $12,060

Net operating income = Contribution margin – Fixed expenses = $12,060 - $7,788 = $4,272

b.

Contribution margin per unit = $11.80 per unit

Contribution margin for 900 units = $11.80 * 900 units = $10,620

Net operating income = Contribution margin – Fixed expenses = $10,620 - $7,788 = $2,832

c.

Increase in variable cost will decrease the contribution margin by same amount.

Revised contribution margin per unit = $11.80 – Increase in variable costs = $11.80 - $0.60 = $11.20 per unit

Revised fixed expenses = $7,788 + Increase in advertising expenses = $7,788 + $1,100 = $8,888

Revised sales volume = 1,000 units + 250 units = 1,250 units

Contribution margin for 1,250 units = 1,250 * $11.20 = $14,000

Net operating income = Contribution margin – Fixed expenses = $14,000 - $8,888 = $5,112

d.

Break even point in unit sales = Fixed expenses / Contribution margin per unit

Break even point in unit sales = $7,788 / $11.80 = 660 units

e.

Contribution margin ratio = Contribution margin / Sales = $11,800 / $25,700 = 0.459144

Break even point in dollar sales = Fixed expenses / Contribution margin ratio = $7,788/0.459144 = $16,962

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