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 $ 20,900
Variable expenses 12,300

Contribution margin 8,600
Fixed expenses 6,708

Net operating income $ 1,892



Questions :
1) If sales increase to 1,001 units, what would be increase in net operating income?
my work: I got 8.60 (contribution margin x 1,001 units = 8,608.6 but this was wrong)
2) if sales decline to 900 units what would be net op inc?
I got 8.60 x 900 = 7,740 but this was wrong
3) if selling price increases $2.30 per unit and sales volume decreases by 100 units what would be net operating income?
- no clue and I am totally lost


please show help with steps :)

Quote:

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Originally Posted by sagnik2422

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 $ 20,900
Variable expenses 12,300

Contribution margin 8,600
Fixed expenses 6,708

Net operating income $ 1,892



Questions :
1) If sales increase to 1,001 units, what would be increase in net operating income?
my work: I got 8.60 (contribution margin x 1,001 units = 8,608.6 but this was wrong)
2) if sales decline to 900 units what would be net op inc?
I got 8.60 x 900 = 7,740 but this was wrong
3) if selling price increases $2.30 per unit and sales volume decreases by 100 units what would be net operating income?
- no clue and I am totally lost


please show help with steps :)

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The principles involved are

Find the selling price per unit and the contribution per unit

Selling unit price = 20900/1000 = 20.90
variable unit cost = 12300/1000 =12.30
contribution margin per unit = 8600/1000 = 8.60

net operating income = contribution margin less fixed expenses

1. assuming there is inventory or more than one trading period to allow sales of 2001 units to be made without increasing production capacity above 1500 units

Then net operating income would be 2001 * 8.60 = ? Less fixed expenses 6708 = ?
2. contribution margin decreases 100 * 8.60 = ?
net operating income becomes 1892 - ? = ?
3. contribution unit margin becomes 8.60 + 2.30 = 10.90 * 900 = ? Less fixed expenses 6708 = ?