Problem
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
1. What us tge degree of operating leverage?
2. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?
3. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?
4. Using the degree of operating leverage that you computed in the previous question, what is the estimated percent increase in net operating income of a 5% increase in sales?