Question

Required information The Foundational 15 (L06-1, LO6-3, L06-4, 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 6-1 Required: 1. What is the contribution margin per unit? (Round your answer to 2 decimal places.) Contribution margin per unit

Answer 1

Answer :

(1) Contribution margin per unit = Contribution margin / Number of unit sold

= $ 7500/1000

= $ 7.5

(2) Contribution margin ratio = Contribution *100 / Sales

= $ 7500*100 /$ 25000

= 30 %

(3) Variable Expenses ratio = variable expenses *100/ sales

= $ 17500*100/ $ 25000

= 70 %

(4) Increase in net operating income = sales* contribution margin ratio

= $ 25*30 % = $ 7.50

Working note -1

sales per unit = $ 25000/1000 = $ 25

(5) Net operating income = sales * contribution margin ratio - Fixed cost

= 900* $ 25*30% - $ 4200

= $ 2550

(6 ) Net operating income = total contribution - Fixed expenses

= 900* $ 9.50 - $ 4200

= $ 4350

New selling price = $ 25+ $ 2 = $ 27

sales volume = 900 unit

Variable expenses per unit = $ 17500/1000= $ 17.50

New contribution margin = sales per unit - variable cost

= $ 27- $ 17.50 = $ 9.50

(7) Net operating Income = Total contribution - Fixed cost

= $ 6.50*1130- $ 5350

= $ 1995

New variable cost per unit = $ 17.50+ $ 1 = $ 18.50

New fixed cost = $ 4200 + $ 1150 = $ 5350

New unit sales = 1000 + 130 = 1130

New contribution per unit = $ 25- $ 18.50 = $ 6.50