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 :- $65,000, variable expenses:- $45,500, contribution margin:- $19,500, fixed expenses:- $14,040. net operating income:- $5,4604. If sales increase to 1,001 units, what would be the increase in net operating income? (round your answer to 2 decimal places.)

a) $19.50
b) $20.00
c) $21.00
d) $21.50

Answer 1

An increase in sales from 1,000 to 1,001 units for the Oslo company would lead to an increase in the net operating income by $19.50. The correct answer is a).

Step-by-step explanation:

To determine the increase in net operating income if sales increase to 1,001 units for the Oslo company, we need to calculate the contribution margin per unit first. We know the total contribution margin at 1,000 units is $19,500, so dividing this by 1,000 gives us a contribution margin per unit of $19.50.

Fixed expenses remain unchanged regardless of the sale of one additional unit, as they are not affected by production volume within the relevant range. Therefore, if one more unit is sold, the entire contribution margin per unit directly impacts the net operating income.

So, an increase in sales from 1,000 to 1,001 units would lead to an increase in the net operating income by $19.50, which is the contribution margin per unit. (a) $19.50