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 $ 21,800 12,600 Contribution margin Fixed expenses 9,200 7,452 Net operating income $ 1,748 4.If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.) Increase in net operating income

Answer 1

Answers:

	Amount per 1000 units	Per unit
Sales	21800	21800/1000 =21.8
Variable expenses	12600	12600/1000 =12.6
Contribution margin	9200	9200/1000 = 9.2
Fixed expenses	7452
Net operating income	1748

4) If sales increases to 1001 units (1 unit extra than current level of 1000 units) the increase in net operating income would be equal to contribution margin per unit which is calculated as total contribution margin divided by units sold = 9200/1000 =9.20

9) Break even point in dollar sales is calculated as Fixed cost/(Sales price unit - Variable expenses per unit) * Sales price per unit 7452/(21.8-12.6) = 810 units * 21.8 sales price per unit = 17658, proof as below:

	Amount per 810 units
Sales	17658
Variable expenses	10206
Contribution margin	7452
Fixed expenses	7452
Net operating income	0

10) To achieve a profit of 5474, the units to be sold is calculated as Fixed cost+Profit required/(Contribution margin per unit) = (7452+5474)/9.2 = 1405 units

11a) Margin of safety in dollars is the amount of difference between current sales and the break even sales i.e. = 21800 (given) - 17658 (break even sales as calculated in 9 above) = 4142

11b) Margin of safety in percentage is calculated as Margin of safety in dollars divided by current sales which is =
4142 (calculated in 11a above) / 21800 (current sales) = 19%