Question

Check my werk 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: 001 $ 3.360.000 1,680,000 1.580.000 Variable expenses Contribution margin Fixed expenses Het operating Income 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 in dollar sales 3. If this year's sales increase by $57000 and fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year's sales? 4-6. Assume the president expects this year's sales to increase by 19%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? 5. The sales manager is convinced that a 15% reduction in the selling price, combined with a $6.000 increase in advertising, would increase this year's unit sales by 25% a. If the sales manager is right, what would be this year's net operating income if this ideas are implemented? b. If the sales manager's ideas are implemented, how much wil net operating income increase or decrease over last year? 6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $180 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25% How much could the president increase this year's advertising expense and still earn the same $1,500,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Rest Res 2 Reo Re Re 48 Re R eso

Answer 1

Sales Variable Expenses contribution Margin Fixed cost Net operating Income 28000 Per unit 3360000 1680000 1680000 180000 1500000 50% 360000 answers 1 CM ratio ( 60/120) 2 Break Even Point in Dollar sales (180000/50%) If sales increase by $57,000 How much Operating income Will Increases Increase in operating income (57,000*0.5) 4A) Degree of Operating leverage (Contribution / Net operating income) 4B Sales increased by 19% how much Opearting income % will increase (Operating Leverage * Increased sales ) 28500 1.12 Times 21.28%

15% reduction in selling price, 61,000 incresed in Advertisement, sales units will increase by 25% Sales units 35000 per unit Sales 3570000 102 Variable Expenses 2100000 contribution Margin 1470000 Fixed cost 241000 Net operating Income 1229000 5A) This years Net operating income 1229000 5B) how much net oeprating income increase or Decrease Decrease by -271000 Instead of Increase in selling price increased the Sales commission by $1.80 Incremental Analysis Sales units 7000 Sales 840000 120 Variable Expenses 4326001 61.8 contribution Margin 407400 58.2 Fixed cost 407400 Net operating income Increase in Fixced Cost( 407400-28000*1.8) 357000 Amount to be increase in advertisements 357000