Oslo Company prepared the following contribution format income statement based on a sales volume of 4,000 units (the relevant range of production is 1,000 units to 5,000 units):

Sales $ 40,000 Variable expenses $ 28,000 Contribution margin $ 12,000 Fixed expenses $ 8,000 Net operating income $4,000

Practice Problems:

1. If the variable cost per unit increases by one dollar spending on advertising increases by $1500, and unit sales increase by 250 units, what would be the net operating income?
2. What is the break-even point in unit sales?
3. What is the break-even point in dollar sales?
4. How many units must be sold to achieve a target profit of $5000?
5. What is the margin of safety in dollars? What is the margin of safety percentage?
6. What is the degree of operating leverage?
7. Using the degree of operating leverage, what is the estimated percent increase in net operation income that would result from a 5% increase in unit sales?
8. Assume that the amounts of the companys total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are 6000 and the total fixed expenses are $12,000. Under this, assuming that total sales remain the same, what is the degree of operating leverage?
9. Using the degree of operating leverage that you computed in the last question, what is the estimated percent increase in net operating income that would result from a 5% increase in unit sales?