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 $ 22,100 Variable expenses 12,700 Contribution margin 9,400 Fixed expenses 7,708 Net operating income $ 1,692.

1. What is the contribution margin per unit?

2. If sales decline to 900 units, what would be the net operating income?

3. How many units must be sold to achieve a target profit of $5,546?

4. 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 $7,708 and the total fixed expenses are $12,700. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 4% increase in sales?