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 variable cost per unit increases by $1, spending on advertising increases by $1,700, and unit sales increase by 240 units, what would be the net operating income?

Answer 1

Final answer:

The net operating income would be $4,700.

Step-by-step explanation:

To calculate the net operating income, we need to consider the changes in the variables given. First, the variable cost per unit increases by $1, resulting in an increase of $240 in total variable cost (240 units x $1). Second, spending on advertising increases by $1,700.

The contribution margin (CM) is the difference between sales and variable costs, so the new CM would be $28,000 + $240 - $1,700 = $26,540. Finally, we can calculate the net operating income by subtracting the fixed costs from the new CM: $26,540 - $21,840 = $4,700.