Question

3-5

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	$	80,000
Variable expenses		52,000
Contribution margin		28,000
Fixed expenses		21,840
Net operating income	$	6,160

If sales decline to 900 units, what would be the net operating income?

Answer 1

Sales price per unit=80,000/1000=$80 per unit

Variable cost per unit=52,000/1000=$52 per unit

Sales(80*900)	72,000
Variable expenses(52*900)	46800
Contribution margin	25200
Fixed expenses	21840
Net operating income	$3360.

NOTE:Total fixed costs and variable cost per unit do not change with change in units