Oslo Company prepared the following contribution format inco

Oslo Company prepared the following contribution format income statement based on a sales volume of ,000 units (the relevant range of production is 500 units to 1,500 units): Sales Variable expenses Contribution margin Fixed expenses $100,000 65,000 35,000 30,100 $ 4,900 Net operating income 1. What is the contribution margin per unit? (Round your answer to 2 decimal places.) Contribution margin per unit 3. What is the variable expense ratio? Variable expense ratic 5. If sales decline to 900 units, what would be the net operating income? Net operating income 7. If the variable cost per unit increases by $1, spending on advertising increases by $1,900, and unit sales increase by 280 units, what would be the net operating income? Net operating income

Solution

1.Contribution margin per unit=Contribution margin/Number of units

=(35000/1000)=$35 per unit

2.Variable expense ratio=Variable expense/Sales

(65000/100,000)=65%

3.Increase in sales would bring an increase in variable expenses and hence an increase in Contribution margin

Hence Contribution margin=($35*900)=$31500

Less:Fixed expenses=($30100)

Net operating income=$1400

NOTE:Total fixed expenses do not change with change in units.

4.

Sales price per unit=$100,000/1000=$100 per unit

Variable cost per unit=$65000/1000=$65 per unit

New Variable cost=(65+1)=$66 per unit

New Contribution margin per unit=(100-66)=$34 per unit

Total Contribution margin=$34*(1000+280)=$43520

Less:Total fixed costs=(30100+1900)=$32000

Net operating income=$11520.