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 (Answer each question independently and always refer to the original data unless instructed otherwise.)

Sales $ 22,100

Variable expenses 12,700

Contribution margin 9,400

Fixed expenses 7,708

Net operating income $ 1,692

7.If the variable cost per unit increases by $.80, spending on advertising increases by $1,300, and unit sales increase by 250 units, what would be the net operating income? 8.What is the break even point in unit sales?

10.How many units must be sold to achieve a target profit of $5,546?

11.What is the margin of safety in dollars? What is the margin of safety percentage?

12.What us tge 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?

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 $7,708 and the total fixed expenses are $12,700. Under this scenario and assuming that total sales remain the same, what is the 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 $7,708 and the total fixed expenses are $12,700. 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)

Answer 1

Answer of Part 8:

Contribution Margin Ratio = Contribution Margin / Sales*100
Contribution Margin Ratio = $10,750 / $27,625 *100
Contribution Margin Ratio = 38.91%

Break Even Point in Unit Sales = Fixed Expenses / Contribution Margin Ratio
Break Even Point in Unit Sales = $9,008 / 0.3891
Break Even Point in Unit Sales = 23,151

Answer of Part 10:

Contribution margin per Unit = Contribution Margin / Units
Contribution Margin per Unit = $10,750 /1,250
Contribution Margin per unit = $8.6

Required Sales Volume = (Fixed Costs + Desired Profit) / Contribution Margin per unit
Required Sales Volume = ($9,008 + $5,546) / $8.6
Required Sales Volume = $14,554 / $8.6
Requires Sales Volume = 1,692 units

Answer of Part 11:

Margin of Safety =Sales – Break Even Point
Margin of Safety = $27,625 - $23,151
Margin of Safety = $4,474

Margin of Safety percentage = Margin of Safety / Sales *100
Margin of Safety percentage = $4,474 / $27,625 *100
Margin of Safety percentage = 16.20%