Answer 1.
Number of units sold = Sales / Selling Price per unit
Number of units sold = $2,880,000 / $120
Number of units sold = 24,000
Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $1,440,000 / $2,880,000
Contribution Margin Ratio = 50%
Answer 2.
Breakeven in dollar sales = Fixed Expenses / Contribution Margin
Ratio
Breakeven in dollar sales = $180,000 / 0.50
Breakeven in dollar sales = $360,000
Answer 3.
Increase in Sales = $46,000
Increase in Net Operating Income = Increase in Sales *
Contribution Margin Ratio
Increase in Net Operating Income = $46,000 * 50%
Increase in Net Operating Income = $23,000
Answer 4-a.
Degree of Operating Leverage = Contribution Margin / Net
Operating Income
Degree of Operating Leverage = $1,440,000 / $1,260,000
Degree of Operating Leverage = 1.14
Answer 4-b.
% Increase in Sales = 17.00%
Degree of Operating Leverage = % Increase in Net Operating
Income / % Increase in Sales
1.14 = % Increase in Net Operating Income / 17.00%
% Increase in Net Operating Income = 19.38%
Answer 5.
Selling Price per unit = $120.00 - 13% * $120.00
Selling Price per unit = $104.40
Variable Expense per unit = $60.00
Fixed Expenses = $180,000 + $76,000
Fixed Expenses = $256,000
Number of units sold = 24,000 + 25% * 24,000
Number of units sold = 30,000
No, the manager should not implement these changes as net operating income will decrease by $184,000 ($1,260,000 - $1,076,000).
Answer 6.
Selling Price per unit = $120.00
Variable Expense per unit = $60.00 + $2.20
Variable Expense per unit = $62.20
Let increase in advertising be $x
Fixed Expenses = $180,000 + $x
Number of units sold = 24,000 + 25% * 24,000
Number of units sold = 30,000
Net Operating Income = Sales - Variable Expenses - Fixed
Expenses
Net Operating Income = Selling Price per unit * Number of units
sold - Variable Expense per unit * Number of units sold - Fixed
Expenses
$1,260,000 = $120.00 * 30,000 - $62.20 * 30,000 - ($180,000 +
$x)
$1,260,000 = $3,600,000 - $1,866,000 - $180,000 - $x
$x = $294,000
Increase in advertising expense is $294,000.
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales $ 2,880,000 Variable expenses 1,440,000 Contribution margin 1,440,000 Fixed expenses 160,000 Net operating income $ 1,280,000 1.) The sales manager is convinced that a 11% reduction in the selling price, combined with a $65,000 increase in advertising, would increase this year's unit sales...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 3, 240,000 1,620,000 1,620,000 180,000 $ 1,440,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even...
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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 3,120,000 Variable expenses 1,560,000 Contribution margin 1,560,000 Fixed expenses 180,000 Net operating income $ 1,380,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 3,240,000 1,620,000 1,620,000 160,000 $ 1,460,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Variable expenses Contribution margin Fixed expenses Net operating income $ 3, 120, eee 1, 55e, Bee 1,550,000 10,eee $ 1,398,eee Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 2,000,000 Variable expenses 1,000,000 Contribution margin 1,000,000 Fixed expenses 180,000 Net operating income $ 820,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 2,160,000 Variable expenses 1,080,000 Contribution margin 1,080,000 Fixed expenses 180,000 Net operating income $ 900,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...