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 $ 70,000
Variable expenses 38,500
Contribution margin 31,500
Fixed expenses 23,310
Net operating income $ 8,190 4.
Required:
a. If sales increase to 1,001 units, what would be the increase in net operating income?

Answer 1

Answer:

$8,222

Explanation:

The computation of increase in net operating income is shown below:-

Contribution margin per unit = Contribution margin ÷ Sales volume units

= ($31,500 ÷ 1,000)

= $31.5

Increase in net operating income = Contribution margin - Fixed expenses

= (1,001 × $31.5) - $23,310

= $8,222

Therefore for computing the increase in net operating income we simply applied the above formula.