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):

Sales	$	75,000
Variable expenses		45,000
Contribution margin		30,000
Fixed expenses		22,800
Net operating income	$	7,200

9.What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $18,000?

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.)

Answer 1

• Requirement 9 to 12, all with workings and calculations

A	Contribution margin	$30,000
B	Sales	$75,000
C = (A/B) x 100	CM Ratio	40%
D	Fixed Expenses	$22,800
E = D/E	Break even point in dollar sales	$57,000
A	Target profits	$18,000
B	Fixed Expenses	$22,800
C = A+B	Total contribution margin required	$40,800
D = $ 30000 / 1000 units	Contribution margin per unit	$30
E = C/D	No. of units required to be sold	1360
A	Total Sales	$75,000
B	Break even point in dollar sales	$57,000
C = A - B	Margin of Safety in dollars	$18,000
D = (C/A) x 100	Margin of Safety %	24%
A	Contribution margin	$30,000
B	Net Operating income	$7,200
C = A/B	Degree of Operating leverage	4.17