Question

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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	$	25,000
Variable expenses		17,500
Contribution margin		7,500
Fixed expenses		4,200
Net operating income	$	3,300

What is the contribution margin per unit?

What is the contribution margin ratio?

What is the variable expense ratio?

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

Answer 1

Answer 1:

Contribution = Sales (-) Variable cost

= 25,000 (-) 17,500

= $ 7,500

and,

Contribution per unit = 7,500 / 1,000

= $ 7.5 per unit

Answer 2:

Contribution Ratio = Contribution / Sales * 100

= 7,500 / 25,000 * 100

= 30%

Answer 3:

Variable cost Ratio = 100 (-) Contribution Ratio

= 100 (-) 30%

= 70%

Answer 4:

If sales increase by 1 unit, increase in Net Operating Income will be equal to contribution per unit.

So, increase in Net Operating Income = $ 7.5.

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