Question

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000...

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 $ 23,900    
  Variable expenses 13,300    
  Contribution margin 10,600    
  Fixed expenses 7,632    
  Net operating income $ 2,968    

   

Required:
What is the degree of operating leverage
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 $ 24,500    
  Variable expenses 13,500    
  Contribution margin 11,000    
  Fixed expenses 7,700   
  Net operating income $ 3,300   

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

2. If the selling price increases by $2.50 per unit and the sales volume decreases by 100 units, what would be the net operating income?

Homework Answers

Answer #1
1
Contribution margin 10600
Divide by Net operating income 2968
Degree of operating leverage 3.57
1
Contribution margin per unit 11 =11000/1000
Increase in net operating income 11
2
Revised selling price 27 =24.50+2.50
Revised sales units 900 =1000-100
Sales 24300 =900*27
Variable expenses 12150 =900*13.50
Contribution margin 12150
Fixed expenses 7700
Net operating income 4450
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