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 9,200 7,452 Contribution margin Fixed expenses Net operating income $ 1,748 7. If the variable cost per unit increases by $.90, spending on advertising increases by $1,400, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.) Net operating income

Answer 1

7.New net operating income after increase in the price is calculated as:

Net operating income=(Number of unit sold+Increasing units sold)*(Total sales/Number of units sold)-(Number of units sold+Increasing unit sold)*(Variable expenses/(Number of units sold+Increasing cost)-(Fixed expenses+Advertising cost)

Net operating income=((1,000+250)*(21,800/1,000))-((1,000+250)*(12,600/1,000)+0.90)-(7,452+1,400)

Net operating income=(1,250*21.8)-(1,250*13.5)-

Net operating income=$27,250-$16,875-$8,852

Net operating income=$1,523

10.Expected sales units=(Fixed cost+Target profit)/(Total sales/Number of units sold)-(Variable expenses/Number of units sold)

Expected sales units=(7,452+5,474)/(21,800/1,000)-(12,600/1,000)

Expected sales units=12,926/(21.8-12.6)

Expected sales units=12,926/9.2

Expected sales units=1,405 units

12.Degree of operating leverage=Cost margin/(Total sales-Variable expense-Fixed expense)

Degree of operating leverage=9,200/(21,800-12,600-7,452)

Degree of operating leverage=9,200/1,748

Degree of operating leverage=5.26