Question

Needing the answer please

9 Required information /The following information applies to the questions displayed below./ 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 Variable expenses Contribution margin Fixed expenses Net operating income $25,80 17,5ee 7,50e $ 3,300 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. Given this scenario and assuming that total sales remain the same. Using the degree of calculated operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? (Round your intermediate calculations and final answer to 2 decimal places.) ease in net operating income

Answer 1

Revised contribution format income statement [ after reversing the amount of total variable expense and total fixed expenses ] :

Sales	$25,000
(-) Variable expenses	( $4,200 )
Contribution margin	$20,800
(-) Fixed expenses	( $17,500 )
Net operating income	$3,300

Degree of operating leverage = Contribution margin / Net operating income = $20,800 / $3,300 = 6.30

We are asked to calculate the % increase in net operating income if the sales is increased by 5%

% change in net operating income / % change in sales = Degree of operating leverage

% change in net operating income / 5% = 6.30

% change in net operating income = 6.30 * 5% = 31.5%

Thus if the sales is increased by 5%, the net operating income will increase by 31.5%