NOTE These are all part of Question 4
Contribution Margin Ratio = Contribution Margin/Sales
= 1,040,000/2,080,000
= 50%
Break even point in sales dollars = Fixed costs/Contribution Margin Ratio
= 160,000/50%
= $320,000
Increase in operating income = increase in contribution margin since fixed costs remain same
= 50,000*50%
= $25,000
4-a Degree of Operating leverage = Contribution Margin/Net Operating income
= 1,040,000/880,000
= 1.1818
4-b % increase in Income = % increase in sales*Degree of operating leverage
= 12%*1.1818 = 14.1816%
i.e. 14.18%
5a. Net Operating income = (70.4 – 40)*26000*1.25 – 160,000-60,000
= $768,000
b.Decrease in Net income = -$112,000
6.Desired Operating Income = $880,000
Add: Fixed costs other than advertising= 160,000
Total = $1,040,000
Contribution Margin = (80-40-2.5)*26,000*1.25 = $1,218,750
Increase in advertising expense = 1,218,750-1,040,000 = $178,750
NOTE These are all part of Question 4 Feather Friends, Inc., distributes a high-quality wooden birdhouse...
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