Question

Required information The Foundational 15 (LO6-1, LO6-3, LO6-4, LO6-5, LO6-6, LO6-7, LO6-8] [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 $ 25,000 17,500 7,500 4,200 $ 3,300 Foundational 6-6 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? Net operating income

Answer 1

Answer

• Current sales price = $ 25000 sales / 1000 units = $ 25
• Current contribution margin per unit = $ 7500 / 1000 units = $ 7.5
• If sales price increases by $2, Contribution margin will also increase by $ 2.
  New contribution margin per unit = $ 7.5 + $ 2 = $ 9.50
• New Sales unit = 1000 units - 100 units = 900 units
• New contribution margin = 900 units x $ 9.50
  = $ 8,550
• Fixed expense = $ 4200
• Net Operating Income = $ 8550 – 4200
  = $ 4,350 Answer Requirement #6