Oslo Company prepared the following contribution format inco

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):

If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.)

If the selling price increases by $1.50 per unit and the sales volume decreases by 100 units, what would be the net operating income? (Do not round intermediate calculations.)

If the variable cost per unit increases by $.50, spending on advertising increases by $1,000, and unit sales increase by 250 units, what would be the net operating income? (Do not round intermediate calculations.)

How many units must be sold to achieve a target profit of $5,750? (Do not round intermediate calculations.)

What is the degree of operating leverage? (Round your answer to 2 decimal places.)

Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,500 and the total fixed expenses are $13,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

Assume that the amounts of the company\'s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,500 and the total fixed expenses are $13,000. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales? Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

Solution

Calculation of increase in Net operating income when increase in production units -

Increase in net operating income = 10

2. Calculation of Net operating income If selling price increase by 1.50 and volume decrease by 100 units -

3. calculation of net operating income when variable cost increases by 0.50 and advertisment expense increases by 1000

4. desired profit = 5750

so unit sold to achieved desired profit = (Fixed expenses + desired profit )/sales price per unit - varibale cost per unit

= (8500+5750)/(23 - 13)

= 1425 units

Degree of operating leverage = contribution/EBIT

= % change in EBIT / % change in sales

= 283.33/ 42.5

= 6.66

DOL = % EBIT / % sales

6.66 = % EBIT /4%

% EBIT = 6.66*4%

= 26.64%

calculation of DOL after reversible -

% change in Net operating income = 6162.5/1500 = 4.10833 or 410.833

% change in Sales = 9775/23000 = .425 or 42.5%

DOL = 410.833/42.5

= 9.66

now if net sales increases by 4% then net operating income = 9.66*4 = 38.67

Please note all values are in $.

In case of any clarification required plesae comment.