Question

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,400, and unit sales increase by 180 units, what would be the net operating income?

Answer 1

This question is incomplete, here is the complete questions:

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: $20,000
• Variable expenses: $12,000
• Contribution margin: $8,000
• Fixed expenses: $6,000
• Net operating income: $2,000

If the variable cost per unit increases by $1, spending on advertising increases by $1,400, and unit sales increase by 180 units, what would be the net operating income?

Answer:

Sales: ((1000+180)=1180 units) * (($20,000/10)=$20) = $23,600

Variable Expenses: 1180 units * ((($12,000/1000)+1) = $13) = $15,340

Contribution Margin (Sales - Variable Expenses): $8,260

Fixed Expense (Variable Expense - Contribution Margin): $7,400

Net Operating Income (Contribution Margin - Fixed Expense): $860

Answer 2

Complete 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 ---------------------22,400

Variable Expenses -------12,800

Contribution Margin -----9,600

Fixed Expenses -----------7,968

Net Operating Income ---1,632

If the variable cost per unit increases by $1, spending on advertising increases by $1,400, and unit sales increase by 180 units, what would be the net operating income?

Solution:

Sales (current) = 22,400

Sales (revised) =[(1,000 + 180) X 22,400/1,000] = 26,432

Variable Expenses (current) = [12,800/1000 = 12.80] = 12,800

Variable Expenses (revised) = [12.80 + 1 = 13.8; 13.8 X 1,250] =17,250

Contribution Margin (current) = 9,600

Contribution Margin (revised) = 11,125

Fixed Expenses (current) = 7,968

Fixed Expenses (revised) = [7,968 + 1,400] = 9,348

Net Operating Income =[11,125 - 9,348]= 1,777