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 $ 25,000 Variable expenses   17,500 Contribution margin   7,500 Fixed expenses   4,200 Net operating income $ 3,300     14. 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 $4,200 and the total fixed expenses are $17,500. 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.)   15. 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 $4,200 and the total fixed expenses are $17,500. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in unit sales? (Round your intermediate calculations and final answer to 2 decimal places.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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 $ 25,000
Variable expenses   17,500
Contribution margin   7,500
Fixed expenses   4,200
Net operating income $ 3,300

 

 

14. 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 $4,200 and the total fixed expenses are $17,500. 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.)

 

15. 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 $4,200 and the total fixed expenses are $17,500. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in unit sales? (Round your intermediate calculations and final answer to 2 decimal places.)

 

 

 

 

 

 

 

Expert Solution
Step 1

Contribution is the amount of earnings left after deducting all direct costs from the revenue from sales.  It is ascertained to learn about the company’s profitability before subtracting the fixed costs.

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