Answer 1.
Number of units sold = Sales / Selling Price per unit
Number of units sold = $1,920,000 / $80
Number of units sold = 24,000
Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $960,000 / $1,920,000
Contribution Margin Ratio = 50%
Answer 2.
Breakeven in dollar sales = Fixed Expenses / Contribution Margin
Ratio
Breakeven in dollar sales = $200,000 / 0.50
Breakeven in dollar sales = $400,000
Answer 3.
Increase in Sales = $43,000
Increase in Net Operating Income = Increase in Sales *
Contribution Margin Ratio
Increase in Net Operating Income = $43,000 * 50%
Increase in Net Operating Income = $21,500
Answer 4-a.
Degree of Operating Leverage = Contribution Margin / Net
Operating Income
Degree of Operating Leverage = $960,000 / $760,000
Degree of Operating Leverage = 1.26
Answer 4-b.
% Increase in Sales = 12.00%
Degree of Operating Leverage = % Increase in Net Operating
Income / % Increase in Sales
1.26 = % Increase in Net Operating Income / 12.00%
% Increase in Net Operating Income = 15.12%
Answer 5.
Selling Price per unit = $80 - 12% * $80
Selling Price per unit = $70.40
Variable Expense per unit = $40.00
Fixed Expenses = $200,000 + $67,000
Fixed Expenses = $267,000
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 $115,000
Answer 6.
Selling Price per unit = $80.00
Variable Expense per unit = $40.00 + $1.50
Variable Expense per unit = $41.50
Let increase in advertising be $x
Fixed Expenses = $200,000 + $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
$760,000 = $80.00 * 30,000 - $41.50 * 30,000 - ($200,000 +
$x)
$760,000 = $2,400,000 - $1,245,000 - $200,000 - $x
$x = $195,000
Increase in advertising expense is $195,000
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses...
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 $200,000 per year. Its operating results for last year were as follows: Sales $ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 200,000 Net operating income $ 840,000 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...
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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...
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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 Variable expenses Contribution margin Fixed expenses Net operating income $ 2,160,000 1,080,000 1,080,000 180,000 $ 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...
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...
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 $ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 180,000 Net operating income $ 860,000 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...