Question

Required information [The following information applies to the questions displayed below.) 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 Variable expenses Contribution margin Fixed expenses Net operating income $100,000 65,000 35,000 30, 100 $ 4,900

Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

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 $30,100 and the total fixed expenses are $65,000. 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.)

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 $30,100 and the total fixed expenses are $65,000. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

Degree of operating leverage = $35,000 / $4,900 = 7.14

% increase in net operating income = Degree of operating leverage X % increase in sales

= 7.14 X 5

= 35.70%

Contribution margin = $100,000 - $30,100 = $69,900

Net operating income = $69,900 - $65,000 = $4,900

Degree of operating leverage = $69,900 / $4,900 = 14.27

% increase in net operating income = Degree of operating leverage X % increase in sales

= 14.27 X 5

= 71.35%