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	$	20,300
Variable expenses		12,100
Contribution margin		8,200
Fixed expenses		6,232
Net operating income	$	1,968

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

2)     If the selling price increases by $2.10 per unit and the sales volume decreases by 100 units, what would be the net operating income? (Do not round intermediate calculations.)

3)     If the variable cost per unit increases by $1.10, spending on advertising increases by $1,600, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.)

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

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 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)

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 $6,232 and the total fixed expenses are $12,100. 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 $6,232 and the total fixed expenses are $12,100. 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

Selling price per unit = 20,300/1000 = 20.3

Variable cost per unit = 12,100/1000 = 12.1

1.

Sales	18,270
Variable cost	10,890
Fixed cost	6,232
Net operating income	1,148

2

Sales	20,160
Variable cost	10,890
Fixed cost	6,232
Net operating income	3,038

3

Sales	25,375
Variable cost	16,500
Fixed cost	7,832
Net operating income	1,043

4.

Break even point = fixed cost/(selling price - variable cost)

= 6,232/(20.3-12.1)

= 760 units