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 sales decline to 900 units, what would be the NOI?

Answer 1

To find the NOI when sales decline to 900 units, adjust the variable costs and contribution margin. The new NOI is -$50,160.

Step-by-step explanation:

To find the NOI when sales decline to 900 units, we need to adjust the variable costs and contribution margin accordingly. Since the original sales volume was 1,000 units, and the variable costs were $52,000, we can calculate the variable costs per unit: $52,000 / 1,000 = $52. Now, we can calculate the new variable costs for 900 units: $52 * 900 = $46,800.

We can also calculate the new contribution margin per unit: $28,000 / 1,000 = $28. Then, we find the new contribution margin for 900 units: $28 * 900 = $25,200.

Now, we can calculate the new NOI. The fixed costs are given as $21,840, so we subtract the new variable costs of $46,800 and the new contribution margin of $25,200 from the fixed costs: $21,840 - $46,800 - $25,200 = -$50,160.

Therefore, the new NOI when sales decline to 900 units would be -$50,160.