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 Contribution margin Fixed expenses Net operating income $ 35,000 21,000 14,000 8,400 $ 5,600 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.) Increase in net operating income %

Answer 1

Answer :

(13)

Increase in net operating Income

12.50

%

Degree of operating Leverage = Contribution margin / Net operating income

= $ 14000 / $ 5600

= 2.5

Increase in Net operating Income = Degree of operating Leverage * % increase in sales

= 2.5* 5 %

= 12.50 %

(14)

Degree of Operating Leverage

4.75

Degree of Operating Leverage = Contribution margin / Net operating Income

= $ 26600/ $ 5600

= 4.75

Contribution margin = Sales - Variable Expenses

= $ 35000 - $ 8400

= $ 26600

Net Income = contribution - Fixed cost  

= $ 26600 - $ 21000

= $ 5600

(15)

Increase in Net operating Income

23.75

%

Increase in Net operating Income = Degree of operating Leverage * % increase in sales

= 4.75 * 5 %

= 23.75 %