Question

! Required information The Foundational 15 (Algo) (LO5-1, LO5-3, LO5-4, LO5-5, LO5-6, LO5-7, LO5-8] [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 $ 50,000 27,500 22,500 14,850 $ 7,650

Answer 1

11.

Contribution Margin ratio = Contribution margin / sales = $22,500 / $50,000 = 0.45

Breakeven point (sales in dollars) = Fixed cost / Contribution margin ratio = $14,850 / 0.45 = $33,000

Margin of safety = Actual sales - Break even sales = $50,000 - $33,000 = $ 17,000

Margin of safety percentage = (Actual sales - Break even sales) / Actual sales

= $17,000 / $50,000 = 0.34

Margin of safety percentage = 34%

12.

Degree of operating leverage = Contribution margin/net operating income

= 22,500/7650 = 2.94

13.

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

                                                                      =2.9411*5

                                                                      = 14.71%

14.

Contribution margin = $50,000 - $14,850 = $35150

Net operating income = $35,150 - $27,500 = $7650

Degree of operating leverage = $35,150 / $7650 = 4.59

15.

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

                                                                      =4.5947*5

                                                                      = 22.97 %