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	$	105,000
Variable expenses		73,500
Contribution margin		31,500
Fixed expenses		27,720
Net operating income	$	3,780

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

Answer 1

Statement showing net operating income for the sales volume of 900 units at the revised selling price

Particulars	Amount ($)
Sales	96,300
Less: Variable expenses	66,150
Contribution margin	30150
Less: Fixed expenses	27,720
Net operating income	2,430

Working Notes:-

1) Revised sales volume = 1000 - 100 = 900 units

2) Sales value for 1000 units = $ 105,000

Therefore, selling price per unit (on the basis of the data given for present sales volume of 1000 units) = $ 105,000/1000 = $ 105

So, Revised selling price per unit = $ (105 + 2) = $ 107

Total sales value for 900 units = $ (107 X 900) = $ 96,300

3) Variable expenses per unit (on the basis of the data given for present sales volume of 1000 units) = $ 73500/1000 = $ 73.50

So, total variable expenses for 900 units = $ 73.50 X 900 = $ 66,150

4) Fixed expenses of $ 27.720 will remain the same for 900 units