Question

Oslo Co prepared the following Contribution Format income statement based on sales volume of 1,000 units. (the relevant rage of production is 500 to 1500 units):

Sales 80,000
Var C 52,000
CM 28,000
Fixed 21,840
NOI 6,160

If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

Answer 1

To calculate the new net operating income after changes in selling price and sales volume, we need to calculate the new sales revenue, variable costs, and contribution margin. After making these calculations, the new net operating income is $960.

Step-by-step explanation:

To calculate the net operating income after the changes in selling price and sales volume, we need to adjust the income statement based on the given information. Given that the selling price increases by $2 per unit and the sales volume decreases by 100 units, we can calculate the new sales revenue, variable costs, and contribution margin.

New sales revenue = (Sales volume - 100) * (Selling price + $2) = 900 * ($80 + $2) = $74,800

New variable costs = Var C = $52,000

New contribution margin = New sales revenue - New variable costs = $74,800 - $52,000 = $22,800

Finally, to calculate the new net operating income, we subtract the fixed costs from the new contribution margin. New net operating income = New contribution margin - Fixed costs = $22,800 - $21,840 = $960