Question

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 $80,000 52,000 28,000 21,840 $ 6,160 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 $21,840 and the total fixed expenses are $52,000. 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.) Increase in net operating income

Answer 1

Income statement

Sales	80,000
Variable expenses	- 21,840
Contribution margin	58,160
Fixed expenses	- 52,000
Net operating income	6,160

Degree of operating leverage = Contribution margin/Net operating income

= 58,160/6,160

= 9.44

Increase in operating income = Increase in sales x Degree of operating leverage

= 5 x 9.44

= 47.2%

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