Question

! Required information The Foundational 15 (LO6-1, LO6-3, L06-4, LO6-5, L06-6, 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 6-8 8. What is the break-even point in unit sales? Break-even point units

Answer 1

8. Break even (units)

= Fixed costs / (Sales price - Variable cost per unit)

= 4200 / (25-17.5)

= 560 units

.

9. Break even (Sales)

= Break even (units) * Sales price

= 560*25

= 14,000

.

10. Target units for profit of 4500

= (Fixed cost + Target profit) / (Sales price - Variable cost per unit)

= (4200 + 4500) / (25-17.5)

= 1160 units

.

11. Margin of Safety

Contribution/ Sales *100 = 7500 / 25000 *100 = 30%

Margin of Safety in $

= Net Income / CM ratio

= 3,300 / 30%

= 11,000

Margin of Safety as % of sales

= 11,000 /25,000 * 100

= 44% of total sales

.

12. Degree of Operating leverage

= Contribution/ Income

= 7500 / 3300

= 2.27

.

13.% increase in income

= Degree of Operating leverage * Increase in % of sales

= 2.27 * 5

= 11.35 or 11.36

.

14. Degree of operating leverage

= Revsied contribution / Net income

= 20,800 / 3,300

= 6.30

.

15.% increase in income

= Degree of operating leverage*Increase in % of sales

= 6.30 * 5

= 31.50 or 31.52