Question

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

6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,700, and unit sales increase by 240 units, what would be the net operating income?

8. What is the break-even point in unit sales?

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $16,800?

Answer 1

Ans:

6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

S.NO	Particulars	Calculations	Amount($)
1	Sales	80,000/1000=80+2=82(1000-100)	73,800
2	Less: Variable cost	52000*900/1000	-46,800
3	Contribution Margin		27,000
4	Less:Fixed Expenses		-21,840
5	Net Operating Income		5,160

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,700, and unit sales increase by 240 units, what would be the net operating income?

S.NO	Particulars	Calculations	Amount($)
1	Sales	80,000/1000=80(1000+240)	99,200
2	Less: Variable cost	52000/1000=52+1=53*1240	-65,720
3	Contribution Margin		33,480
4	Less:Fixed Expenses	21840+1700	-23,540
5	Net Operating Income		9,940

8. What is the break-even point in unit sales?

Break Even Point=Fixed costs/Selling price-variable cost

=21840/80-52=21840/28=780 Units

9. 9. What is the break-even point in dollar sales?

Break Even in value=Total Fixed cost/Contribution to sales ratio

=21840/.35=$62,400

Contribution to sales ratio=contribution/sales=28,000/80,000=35%

10. How many units must be sold to achieve a target profit of $16,800?

=Fixed Expenses + Target Profit/Contribution Margin per unit

=21840+16,800/28=1380 Units

Contribution Margin per unit=28000/1000=28