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):

1,500    

5. If sales decline to 900 units, what would be the net operating income? (Do not round intermediate calculations.)

     Net operating income _____.

8. What is the break-even point in unit sales? (Do not round intermediate calculations.)

     Break-even point _____ units.

9. What is the break-even point in dollar sales? (Round intermediate calculations to 4 decimal places. Round your final answer to the nearest dollar amount.)

     Break-even point _____.

12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

     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? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

     Increase in net operating income _____%

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? (Round your answer to 2 decimal places.)

     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? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

     Increase in net operating income _____%

  Sales $ 23,000       Variable expenses 13,000       Contribution margin 10,000       Fixed expenses 8,500       Net operating income $

1,500    

Explanation / Answer

5. Net operating income = $ 500

Note :

8.break-even point in unit sales = Fixed Cost / Contribution Margin Per Unit

= $ 8,500 / $ 10

= 850 Units

Note:

Contribution Margin Per Unit = Contribution Margin / Units

= $ 10,000 / 1,000 Units

= $ 10

3. break-even point in dollar sales = Fixed Cost / Contribution Margin Ratio

= $ 8,500 / 43.4783%

= $ 19,549.98

= $ 19,550

Note:

Contribution Margin Ratio = Contribution Margin /Sales *100

= $ 10,000 / 23,000 *100

= 43.4783%

12. Degree of operating leverage = Contribution Margin / Net Income

= $ 10,000 / 1,500

= 6.67

1,000 Units Per Unit(Total /,1000 Units) 900 Units Volume Sales $ 23,000 23 20,700.00 Variable expenses 13,000 13 11,700.00 Contribution margin 10,000 10 9,000.00 Fixed expenses 8,500 8,500.00 Net operating income $ 1,500 500.00

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