Oslo Company prepared the following contribution format income statement based o
ID: 2523277 • 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):
Required:
1. What is the contribution margin per unit? (Round your answer to 2 decimal places.)
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? (Round your answer to 2 decimal places.)
5. If sales decline to 900 units, what would be the net operating income?
6. If the selling price increases by $2 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 $1, spending on advertising increases by $1,050, and unit sales increase by 110 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 $3,600?
11. What is the margin of safety in dollars? What is the margin of safety percentage?
12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)
13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)
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 $3,120 and the total fixed expenses are $9,000. 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.)
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 $3,120 and the total fixed expenses are $9,000. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)
Sales $ 15,000 Variable expenses 9,000 Contribution margin 6,000 Fixed expenses 3,120 Net operating income $ 2,880Explanation / Answer
Answer
Income Statement
Units
1,000
Per Unit
Total
Sales
15
15,000
Variable Expenses
9
9,000
Contribution Margin
6
6,000
Fixed Expenses
3,120
Net Operating Income
2,880
1.
Contribution Margin per unit = Contribution Margin / No. of Units Sold
= $6,000 / 1,000 Units
Contribution Margin per unit = $6 per unit
2.
Contribution Margin Ratio = (Contribution Margin / Sales) * 100
= (6,000 / 15,000) * 100
Contribution Margin Ratio = 40%
3.
Variable Expenses Ratio = (Variable Expenses / Sales) * 100
= (9,000 / 15,000) * 100
Variable Expenses Ratio = 60%
4.
If there is an increase in sale, then only Variable Expenses will incur as Fixed Expenses will not change with change in Production or Sale.
If there is an increase of 1 Unit (1,001 – 1,000), then the Net Operating Income will increase by $6 ($15 - $9)
5.
As I already calculated the per unit cost and profit at the starting of Question, so Income Statement for 900 Units:
Income Statement for 900 Units
Units
900
Per Unit
Total
Sales
15
13,500
Variable Expenses
9
8,100
Contribution Margin
6
5,400
Fixed Expenses
3,120
Net Operating Income
2,280
6.
Income Statement for 900 Units
Units
900
(1,000 – 100)
Per Unit
Total
Sales
17
(15 + 2)
15,300
Variable Expenses
9
8,100
Contribution Margin
6
7,200
Fixed Expenses
3,120
Net Operating Income
4,080
7.
Income Statement for 1,110 Units
Units
1,110
(1,000 + 110)
Per Unit
Total
Sales
15
16,650
Variable Expenses
10
(9 + 1)
11,100
Contribution Margin
6
5,550
Fixed Expenses
3,120
Advertisement Expense
1,050
Net Operating Income
1,380
8.
Break-Even Point (In Units) = Fixed Cost / Contribution Margin per unit
= $3,120 / $6 per unit
Break-Even Point (In Units) = 520 Units
9.
Break-Even Point (In Dollar) = Fixed Cost / Contribution Margin ratio
= $3,120 / 40%
Break-Even Point (In Dollar) = $7,800
10.
Profit = $3,600
Let’s Units to be sold = x
(Sales –Variable Expenses) – Fixed Cost = Profit
Contribution Margin - Fixed Cost = Profit
($6 * x) – 3,120 = 3,600
6x = 3,600 + 3,120
X = 1,120 Unit
No. of Units to be sold to achieve $3,600 Profit = 1,120 Units
Dear Student, As per Chegg Policy we are only required to answer 4 Subparts, but I still answered 10 Subparts.
Income Statement
Units
1,000
Per Unit
Total
Sales
15
15,000
Variable Expenses
9
9,000
Contribution Margin
6
6,000
Fixed Expenses
3,120
Net Operating Income
2,880
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